Digital Transformation And ESG Trends Will Shape Resilient Office Markets

Key Takeaways

• Large B2B contract wins and expansion into the hospitality sector position the company for long-term growth and diversification of its revenue streams.
  
• Investments in supply chain automation and sustainability initiatives are enhancing operational efficiency, supporting margin expansion, and strengthening the company’s market positioning.
  
• Declining demand, store closures, competitive pressures, and unproven new initiatives challenge ODP’s revenue stability, margin strength, and ability to successfully diversify earnings.

Catalysts

Provides business products, services and supplies, and digital workplace technology solutions to small, medium, and enterprise-level businesses in the United States, Puerto Rico, the U.S.

• The company’s significant wins in large B2B contracts—including the onboarding of CoreTrust and several new enterprise customers—are expected to materially increase revenue in the second half of the year and beyond, as these contracts ramp up to their full annual run-rate of over $500 million in new gross business wins.
  
• ODP’s successful entry into the hospitality vertical, an $16 billion and largely untapped market for the company, broadens its revenue base and addresses a sector benefiting from sustained growth in service industries and higher demand for supplier consolidation, positioning ODP for long-term, high-margin growth.
  
• The ongoing shift to digital, hybrid, and remote work environments continues to drive steady demand for office supplies, technology, and collaboration tools—a core area where ODP is well-positioned due to its deep enterprise relationships and diversified product offering, supporting resilient revenues and margin stability as workplace models become entrenched.
  
• Strategic investments in supply chain automation, digital platforms, and distribution network enhancements are driving operational efficiencies, supporting higher EBITDA margins through reduced fixed costs and improved working capital management, as evidenced by the doubling of free cash flow year-over-year and further cost optimization planned under the “Optimize for Growth” initiative.
  
• ODP’s emphasis on sustainable and eco-friendly office products, in response to rising corporate ESG mandates, allows it to capture premium pricing with enterprise and SMB customers seeking low-carbon, responsibly sourced goods—supporting higher-margin product sales and strengthening long-term pricing power as environmental responsibility becomes an enduring requirement.

ODP Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ODP compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ODP's revenue will decrease by 3.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.7% today to 3.2% in 3 years time.
• The bullish analysts expect earnings to reach $198.7 million (and earnings per share of $6.87) by about July 2028, up from $46.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.9x on those 2028 earnings, down from 11.7x today. This future PE is lower than the current PE for the US Specialty Retail industry at 17.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

ODP Future Earnings Per Share Growth

Risks

• The continued secular decline in demand for traditional office and paper-based products, driven by digitalization and remote work, threatens ODP's core consumer and B2B revenue streams and could structurally depress top-line growth.
  
• Persistent store closures and ongoing reduction in retail locations reflect the vulnerability of ODP’s brick-and-mortar operations in the face of digital and big-box competition, which will likely continue to erode overall revenues and increase restructuring charges, impacting net income.
  
• The lingering effects of past customer losses, soft B2B market demand, and slow onboarding progress for large new contracts create execution risk and may delay or diminish expected revenue recovery, placing additional pressure on near
• and medium-term earnings.
  
• Intense competition from eCommerce giants and big-box retailers is contributing to margin compression and potential loss of market share, which threatens both ODP’s ability to maintain pricing power and its underlying profitability.
  
• The company's significant focus on restructuring and transformation initiatives exposes it to recurring costs and execution risk, and if these new growth segments such as hospitality or Supply Chain as a Service fail to scale as expected, the anticipated diversification may not offset the ongoing structural declines, increasing the risk to sustained earnings growth.

Valuation

• The assumed bullish price target for ODP is $41.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ODP's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $41.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $198.7 million, and it would be trading on a PE ratio of 6.9x, assuming you use a discount rate of 11.6%.
• Given the current share price of $17.91, the bullish analyst price target of $41.0 is 56.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.