Analyst Christopher Horvers said in a note on Friday that he upgraded the stock to overweight from neutral, on his belief that the economy will stabilize over the next year. About 70% of the company's revenue growth is attributable to macro-economic conditions.
But what happens if said foreseen stabilization comes a cropper? Investors don't seem to care, sending shares of the office supplies retailer soaring 10% in morning trading to $4.82.
Other reasons for the upgrade: stabilizing same-store sales and the potential full-year benefit from store closures.
Horvers, it's worth noting, warned the stock is not for the "faint of heart." Prior to the upgrade Office Depot had one buy rating, 12 holds and three sells.
"Office Depot has demonstrated inconsistency since 2006, and management has lost some credibility," he wrote. "Also, the second quarter could be the worst quarter of 2009 for Office Depot given seasonally low revenues."
In its first quarter, Office Depot recorded a
smaller-than-expected loss in the first quarter of $55 million, or 20 cents a share, compared with a profit $69 million, or 25 cents, last year.
Excluding charges for restructuring, which included facility closings, the company reported earnings of 10 cents a share. Analysts were expecting a loss of 10 cents.
Earlier this week, rival
, but still managed to exceed analysts' expectations.
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