Why Office Depot Shares Popped

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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 (NYS: 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.

The article Why Office Depot Shares Popped originally appeared on Fool.com.

Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. The Motley Fool owns shares of Staples.Motley Fool newsletter serviceshave recommended buying shares of Staples. Try any of our Foolish newsletter servicesfree for 30 days.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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