Why Office Depot Is Poised to Keep Poppin'

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Office Depot rallied 4% today after Bank of America upgraded the office supply retailer from "underperform" to "buy."

So what: Along with the upgrade, analyst Denise Chai raised her price target to $6.50 (from $3.50), representing about 20% worth of upside to yesterday's close. While momentum traders might be turned off by Office Depot's recent share-price weakness, Chai believes that it presents investors with a solid entry point given the potential synergies from its recent merger with OfficeMax.

Now what: Bank of America expects the combined entity to post a $0.02-per-share loss in 2013, a $0.32 profit in 2014, and earnings of $0.54 in 2015. "With the merger with OfficeMax completed on Nov. 5 and the stock down 10% since 11/1, we are turning positive on the potential for cost synergies, particularly with the announcement of a new outside CEO with substantial turnaround experience," noted Bank of America. But while Office Depot might be set up for a nice short-term pop, increasingly strong competitive headwinds continue to make it a questionable long-term opportunity.

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The article Why Office Depot Is Poised to Keep Poppin' originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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 Motley Fool has a disclosure policy.

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