Office Depot (ODP), the seller of office products, reported earnings last week and announced that it plans on closing 400 stores. This gave ODP stock a technically strong boost that puts it into a positive posture in the medium term.
Last Tuesday, Office Depot reported a first-quarter net loss of $109 million, compared to a $17 million loss in the same period one year ago. On an adjusted basis, ODP earnings came to 7 cents per share. Moreover, Office Depot increased its full-year 2014 guidance for operating income to no less than $160 million, up from prior guidance of no less than $140 million.
Office Depot also announced that it will close at least 400 U.S. stores, which in part led some brokers like Credit Suisse to upgrade their outlook on ODP stock. CS also raised its price target from a little over $6 to $7.
As a result, ODP stock rallied more than 15% last Tuesday, which quickly brought new momentum into shares that continued right through the end of the week.
ODP Stock Charts
After Office Depot was obliterated in the financial crisis, it saw some big rallies in percentage terms, but it never really recuperated — a result of the continuing digitization of business and business services. From a fundamental perspective, Office Depot’s current challenge is to somewhat reinvent itself, using its name recognition and experience in the industry as major assets.
However, on the below weekly chart of ODP stock looking back to the early 2009 lows, note that Office Depot did develop an important higher low in August 2012 vs. the 2009 lows. And now, last week’s rally puts ODP in a better position to break diagonal resistance dating back to the April 2010 highs.
If and when ODP stock manages to break past this area, through the medium-term lens this could quickly lead shares to break to higher highs vs. the early 2013 highs.
Last week’s rally in ODP stock broke its late October 2013 diagonal resistance line. Although the stock might be somewhat exhausted in the near-term, last week’s 23%-plus frisky foray higher is a promising move in the near to medium term.
From here, a little basing in ODP stock between the $5 to $5.40 area could then serve as a nice higher base to move shares into the high $5s or low $6s over the course of the coming one to two months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.