Morningstar Rating

Stock Research and Analysis

by Liang Feng

Bulls Say

Office Depot may realize synergies in a merger with OfficeMax, by accelerating the closure of competing/unproductive outlets, increasing scale, and consolidating distribution infrastructure.
Office Depot can cross-sell new items to existing customers, which may accelerate growth in non-adjacent (but higher-margin) categories such as break-room, janitorial, and sanitorial supplies.
Office Depot's contract business has relatively little exposure to medium-size businesses, but expansion into this segment may dramatically improve its gross margin mix and increase capacity utilization. Read more 

Bears Say

Nontraditional office competitors are increasingly targeting the profitable B2B market for small-medium size businesses.
Traditional office supplies are in secular decline, which may damage the already unhealthy supply-demand balance. If demand slips more, industry participants may lower prices in order to increase capacity utilization, but an industry price war may ensue.
From peak-to-trough, Office Depot’s annual sales fell 31% from 2007 to 2012. Even after extensive cost cuts, the firm was barely profitable, so another recession may push the firm into negative cash-flow territory. Read more 

Management

We have raised Office Depot's stewardship rating to Standard (from Poor), as the ranks have shuffled a great deal in the aftermath of the merger with OfficeMax. We had assigned Office Depot and OfficeMax’s previous management teams Poor and Standard   Read more 

Profile

Office Depot merged with OfficeMax to become the world's second-largest office supply distributor, collectively generating more than $17 billion of sales in 2012. The combined   Read more 

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