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Tale of the Tape

Zacks Equity Research

Falling Earnings Estimates Signal Weakness Ahead for Office Depot (ODP)
March 13, 2014


Trades from $3

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

One such stock that you may want to consider dropping is Office Depot, Inc. (ODP - Free Report) which has witnessed a significant price decline in the past four weeks, and it has seen negative earnings estimate revisions for the current quarter and the current year. A Zacks Rank #5 (Strong Sell) further confirms weakness in ODP.

A key reason for this move has been the negative trend in earnings estimate revisions. For the full year, we have seen 9 estimates moving down in the past 30 days, compared to no upward revision. This trend has caused the consensus estimate to trend lower, going from 25 cents a share a month ago to its current level of 11 cents.

Also, for the current quarter, Office Depot has seen 6 downward estimate revisions versus no revision in the opposite direction, dragging the consensus estimate down to 3 cents per share from 7 cents a share over the past 30 days.   

The stock has also seen some pretty dismal trading lately, as the share price has dropped 11.9% in the past month.

So it may not be a good decision to keep this stock in your portfolio anymore, at least if you don’t have a long time horizon to wait.

If you are still interested in the Retail industry, you may instead consider some better-ranked stocks including Barnes & Noble, Inc. (BKS - Free Report) , ITOCHU Corporation (ITOCY - Free Report) and Kingfisher plc (KGFHY - Free Report) . While Barnes & Noble sports a Zacks Rank #1 (Strong Buy), ITOCHU and Kingfisher hold a Zacks Rank #2 (Buy). With favorable Zacks Ranks, these stocks may be better selections at this time.
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