The firm said it lowered its rating on the worldwide supplier of office products and services based on its belief that Office Depot's supplies and paper sales will continue to wear away.
Goldman Sachs also cited a contract customer survey that revealed a large percentage of the company's customers are willing to change providers. Analysts see a higher risk for customer departure, the flyonthewall.com reports.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
Goldman Sachs maintained its $7.15 price target on the stock.
Separately, TheStreet Ratings team rates OFFICE DEPOT INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate OFFICE DEPOT INC (ODP) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ODP's very impressive revenue growth greatly exceeded the industry average of 1.1%. Since the same quarter one year prior, revenues leaped by 55.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 870.70% to $197.00 million when compared to the same quarter last year. In addition, OFFICE DEPOT INC has also vastly surpassed the industry average cash flow growth rate of 22.68%.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, OFFICE DEPOT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 81.3% when compared to the same quarter one year ago, falling from $160.90 million to $30.00 million.
- You can view the full analysis from the report here: ODP Ratings Report