Office Depot, Inc. ODP, the supplier of a range of office products and services, is slated to report first-quarter fiscal 2015 results on May 5. In the last quarter, it posted positive earnings surprise of 75%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Management continues to maintain a cautious stance and expects sales in 2015 to be marred by store closures, currency headwinds and tough market conditions.
The office supplies industry continues to face secular headwinds. In addition, demand for office products has been curbed by the latest technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Lastly, with severe competition from online retailers, prospects for growth have dwindled.
This prompted two retailers, Staples and Office Depot, to come together. Staples made a $6.3 billion bid for Office Depot in February. The transaction is likely to conclude by the end of 2015, subject to antitrust and regulatory approval.
Earnings Whispers
Our proven model does not conclusively show that Office Depot is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Office Depot is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 13 cents.
Zacks Rank: Office Depot’s Zacks Rank #1 (Strong Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Skullcandy, Inc. SKUL with an Earnings ESP of +7.69% holds a Zacks Rank #2 (Buy).
Tyson Foods, Inc. TSN has an Earnings ESP of +1.35% and a Zacks Rank #3 (Hold).
Twenty-First Century Fox, Inc. FOXA has an Earnings ESP of +2.56% and a Zacks Rank #3.
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