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Why Office Depot Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Office Depot (NYSE: ODP  ) climbed 10% today after hedge fund Starboard Value disclosed a 13.3% stake in the embattled office supply chain.

So what: Office Depot's stock has been pounded over the past few years on steadily declining sales, so the investment from activist investor Starboard represents a much-needed catalyst for a turnaround. While the entire office supply space is certainly under pressure, Office Depot has underperformed rivals Staples and OfficeMax, prompting Starboard to push for lower expenses and an increased focus on higher-margin services to boost profitability.

Now what: Given Starboard's strong track record of creating shareholder value, I'd expect operational improvement fairly soon. "We believe management must act now with a renewed sense of urgency and discipline to rationalize general and administrative expenses, significantly reduce advertising expenses, and execute on several other strategic initiatives to dramatically improve the operating performance of the company," wrote Starboard CEO Jeffrey Smith in a letter to Office Depot. With the stock still well off its 52-weeh high and trading at a single-digit P/E, there might even be time to bet on those changes.

Interested in more info on Office Depot? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Staples. Motley Fool newsletter services have recommended buying shares of Staples. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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10/21/2016 9:33 AM
ODP $3.29 Down -0.03 -0.90%
Office Depot CAPS Rating: **