ODP Corporation (ODP) – A Bull Case Thesis

We came across a bull thesis on ODP Corporation (ODP) on ValueInvestorsClub by BlueFIN24. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who tend to think out of the box. We find the ideas presented on the site well thought out and worth a serious consideration. Click here for the full article. Below we summarized the ODP bull thesis.

The Boca Raton, Florida-based ODP Corporation is a American holding company. Through its subsidiaries, notably The Office Depot Inc., ODP operates a chain of office product warehouse stores in North America, Europe, Asia, and Central America, selling branded merchandise. ODP also provides business services primarily to small and medium-sized businesses and the home office market. The company employs about 38,000 associates with businesses in the US, and has combined sales of about $11 billion annually.

Current Situation

ODP has well-established logistics mechanism that can deliver bulk orders of almost any office supply material at any office in a day or so. Unfortunately, the poorly-managed stores gave ODP’s image a huge dent. The management’s complacency towards rebuilding the company’s misplaced image was further exasperated by their focus shifting to their B2B business. The management’s decision to acquire CompuCom – an IT services business – for $1 billion in 2017 turned ODP’s priorities turtle. The deal not only derailed the image-revamp urgencies, but even the acquisition turned out to be dilutive to ODP.

Challenge & Opportunity

Just when the management woke up from their slumber, Covid-19 engulfed businesses and lives. The work from home culture became the new norm, and suddenly Amazon was the household name – retail and wholesale alike. Basically, the analyst believes the consumer-driven model of Amazon is characteristically suitable only for retail deliveries. It acts as an aggregator of products, and hence, incompetent to arrange and deliver large commercial orders. Where Amazon would end up gathering the merchandise from different sources in various packaging to fill the order, ODP would easily deliver the entire bulk order – all in same shape and size and in one day.

It is only a matter of time before the pandemic loses its viral prowess, and commercial demand for office supplies and even other items such as PPE kits starts to grow. It will then be only a player like ODP that can deliver the merchandise in bulk and on time. The stocking up of immediate necessities  by Amazon should eventually give way to ODP’s logistically strong procurement and deliver model.

The analyst believes ODP has little downside at current levels, and seems well-positioned to attract a much higher valuation than Staples’ $40 offer a while ago. Depending upon the valuation of each segment, ODP’s upside could be close to $80.