Intrinsic value of Office Depot, Inc. - ODP

Previous Close

$1.52

  Intrinsic Value

$8.23

stock screener

  Rating & Target

str. buy

+441%

Previous close

$1.52

 
Intrinsic value

$8.23

 
Up/down potential

+441%

 
Rating

str. buy

We calculate the intrinsic value of ODP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.40
  3.56
  3.70
  3.83
  3.95
  4.06
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
Revenue, $m
  11,390
  11,795
  12,232
  12,701
  13,202
  13,738
  14,308
  14,914
  15,557
  16,238
  16,960
  17,722
  18,528
  19,379
  20,278
  21,225
  22,223
  23,275
  24,383
  25,549
  26,777
  28,069
  29,428
  30,858
  32,361
  33,942
  35,604
  37,351
  39,187
  41,117
Variable operating expenses, $m
  11,021
  11,408
  11,826
  12,274
  12,753
  13,265
  13,810
  14,389
  15,004
  15,655
  16,211
  16,940
  17,711
  18,524
  19,383
  20,288
  21,242
  22,248
  23,307
  24,422
  25,595
  26,830
  28,129
  29,496
  30,933
  32,444
  34,033
  35,703
  37,458
  39,303
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  11,021
  11,408
  11,826
  12,274
  12,753
  13,265
  13,810
  14,389
  15,004
  15,655
  16,211
  16,940
  17,711
  18,524
  19,383
  20,288
  21,242
  22,248
  23,307
  24,422
  25,595
  26,830
  28,129
  29,496
  30,933
  32,444
  34,033
  35,703
  37,458
  39,303
Operating income, $m
  369
  387
  406
  427
  449
  473
  498
  525
  553
  583
  748
  782
  818
  855
  895
  937
  981
  1,027
  1,076
  1,127
  1,182
  1,239
  1,299
  1,362
  1,428
  1,498
  1,571
  1,648
  1,729
  1,814
EBITDA, $m
  638
  660
  685
  711
  739
  769
  801
  835
  871
  909
  950
  992
  1,038
  1,085
  1,136
  1,189
  1,244
  1,303
  1,365
  1,431
  1,499
  1,572
  1,648
  1,728
  1,812
  1,901
  1,994
  2,092
  2,194
  2,302
Interest expense (income), $m
  63
  111
  121
  131
  143
  155
  169
  183
  198
  214
  231
  249
  268
  288
  309
  332
  355
  380
  407
  435
  464
  495
  527
  561
  597
  635
  674
  716
  760
  806
  855
Earnings before tax, $m
  258
  266
  275
  284
  294
  304
  315
  327
  339
  352
  500
  514
  530
  546
  563
  581
  600
  620
  641
  664
  687
  712
  738
  765
  793
  823
  855
  888
  923
  960
Tax expense, $m
  70
  72
  74
  77
  79
  82
  85
  88
  92
  95
  135
  139
  143
  147
  152
  157
  162
  167
  173
  179
  186
  192
  199
  206
  214
  222
  231
  240
  249
  259
Net income, $m
  188
  194
  201
  207
  214
  222
  230
  239
  248
  257
  365
  375
  387
  399
  411
  424
  438
  453
  468
  484
  502
  520
  538
  558
  579
  601
  624
  648
  674
  701

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,377
  6,604
  6,849
  7,111
  7,392
  7,692
  8,011
  8,350
  8,710
  9,092
  9,496
  9,923
  10,374
  10,851
  11,354
  11,884
  12,443
  13,032
  13,652
  14,305
  14,993
  15,716
  16,477
  17,278
  18,119
  19,004
  19,935
  20,913
  21,941
  23,022
Adjusted assets (=assets-cash), $m
  6,377
  6,604
  6,849
  7,111
  7,392
  7,692
  8,011
  8,350
  8,710
  9,092
  9,496
  9,923
  10,374
  10,851
  11,354
  11,884
  12,443
  13,032
  13,652
  14,305
  14,993
  15,716
  16,477
  17,278
  18,119
  19,004
  19,935
  20,913
  21,941
  23,022
Revenue / Adjusted assets
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
  1.786
Average production assets, $m
  1,446
  1,498
  1,553
  1,613
  1,677
  1,745
  1,817
  1,894
  1,976
  2,062
  2,154
  2,251
  2,353
  2,461
  2,575
  2,696
  2,822
  2,956
  3,097
  3,245
  3,401
  3,565
  3,737
  3,919
  4,110
  4,311
  4,522
  4,744
  4,977
  5,222
Working capital, $m
  -68
  -71
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -102
  -106
  -111
  -116
  -122
  -127
  -133
  -140
  -146
  -153
  -161
  -168
  -177
  -185
  -194
  -204
  -214
  -224
  -235
  -247
Total debt, $m
  1,676
  1,825
  1,985
  2,157
  2,341
  2,537
  2,746
  2,969
  3,204
  3,454
  3,719
  3,999
  4,294
  4,606
  4,936
  5,283
  5,649
  6,035
  6,441
  6,869
  7,319
  7,793
  8,291
  8,816
  9,367
  9,947
  10,556
  11,197
  11,871
  12,578
Total liabilities, $m
  4,177
  4,326
  4,486
  4,658
  4,842
  5,038
  5,247
  5,470
  5,705
  5,955
  6,220
  6,500
  6,795
  7,107
  7,437
  7,784
  8,150
  8,536
  8,942
  9,370
  9,820
  10,294
  10,792
  11,317
  11,868
  12,448
  13,057
  13,698
  14,372
  15,079
Total equity, $m
  2,200
  2,278
  2,363
  2,453
  2,550
  2,654
  2,764
  2,881
  3,005
  3,137
  3,276
  3,423
  3,579
  3,744
  3,917
  4,100
  4,293
  4,496
  4,710
  4,935
  5,172
  5,422
  5,685
  5,961
  6,251
  6,557
  6,878
  7,215
  7,570
  7,943
Total liabilities and equity, $m
  6,377
  6,604
  6,849
  7,111
  7,392
  7,692
  8,011
  8,351
  8,710
  9,092
  9,496
  9,923
  10,374
  10,851
  11,354
  11,884
  12,443
  13,032
  13,652
  14,305
  14,992
  15,716
  16,477
  17,278
  18,119
  19,005
  19,935
  20,913
  21,942
  23,022
Debt-to-equity ratio
  0.760
  0.800
  0.840
  0.880
  0.920
  0.960
  0.990
  1.030
  1.070
  1.100
  1.140
  1.170
  1.200
  1.230
  1.260
  1.290
  1.320
  1.340
  1.370
  1.390
  1.420
  1.440
  1.460
  1.480
  1.500
  1.520
  1.530
  1.550
  1.570
  1.580
Adjusted equity ratio
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  188
  194
  201
  207
  214
  222
  230
  239
  248
  257
  365
  375
  387
  399
  411
  424
  438
  453
  468
  484
  502
  520
  538
  558
  579
  601
  624
  648
  674
  701
Depreciation, amort., depletion, $m
  269
  274
  279
  284
  290
  297
  303
  311
  318
  326
  201
  210
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  384
  403
  423
  443
  465
  488
Funds from operations, $m
  457
  468
  479
  492
  505
  519
  533
  549
  566
  583
  566
  586
  607
  629
  652
  676
  702
  729
  758
  788
  819
  853
  888
  925
  963
  1,004
  1,047
  1,092
  1,139
  1,189
Change in working capital, $m
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
Cash from operations, $m
  460
  470
  482
  494
  508
  522
  537
  553
  570
  588
  570
  590
  611
  634
  657
  682
  708
  735
  764
  795
  827
  860
  896
  933
  972
  1,013
  1,057
  1,102
  1,150
  1,200
Maintenance CAPEX, $m
  -131
  -135
  -140
  -145
  -151
  -157
  -163
  -170
  -177
  -185
  -193
  -201
  -210
  -220
  -230
  -241
  -252
  -264
  -276
  -289
  -303
  -318
  -333
  -349
  -366
  -384
  -403
  -423
  -443
  -465
New CAPEX, $m
  -44
  -51
  -55
  -60
  -64
  -68
  -72
  -77
  -82
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156
  -164
  -173
  -182
  -191
  -201
  -211
  -222
  -233
  -245
Cash from investing activities, $m
  -175
  -186
  -195
  -205
  -215
  -225
  -235
  -247
  -259
  -272
  -285
  -298
  -312
  -328
  -344
  -361
  -379
  -398
  -417
  -437
  -459
  -482
  -506
  -531
  -557
  -585
  -614
  -645
  -676
  -710
Free cash flow, $m
  285
  284
  287
  290
  293
  297
  301
  306
  311
  316
  286
  292
  299
  306
  313
  321
  329
  338
  347
  357
  368
  379
  390
  402
  415
  429
  443
  458
  473
  490
Issuance/(repayment) of debt, $m
  137
  149
  160
  172
  184
  196
  209
  222
  236
  250
  265
  280
  296
  312
  329
  347
  366
  386
  406
  428
  450
  474
  498
  524
  551
  580
  610
  641
  673
  708
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  137
  149
  160
  172
  184
  196
  209
  222
  236
  250
  265
  280
  296
  312
  329
  347
  366
  386
  406
  428
  450
  474
  498
  524
  551
  580
  610
  641
  673
  708
Total cash flow (excl. dividends), $m
  422
  432
  447
  462
  477
  494
  510
  528
  547
  566
  551
  572
  594
  618
  642
  668
  695
  724
  754
  785
  818
  852
  889
  927
  966
  1,008
  1,052
  1,098
  1,147
  1,198
Retained Cash Flow (-), $m
  -74
  -78
  -84
  -91
  -97
  -103
  -110
  -117
  -124
  -132
  -139
  -147
  -156
  -164
  -173
  -183
  -193
  -203
  -214
  -225
  -237
  -250
  -263
  -276
  -290
  -305
  -321
  -337
  -355
  -373
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  348
  354
  362
  371
  380
  390
  400
  411
  423
  435
  411
  425
  439
  453
  469
  485
  503
  521
  540
  560
  581
  603
  626
  650
  676
  703
  731
  761
  792
  825
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  333
  324
  315
  306
  295
  283
  270
  257
  243
  228
  195
  181
  167
  152
  138
  123
  109
  96
  83
  71
  60
  50
  41
  33
  26
  21
  16
  12
  9
  6
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Office Depot, Inc. provides a selection of products and services to consumers and businesses of various sizes. The Company's segments include North American Retail Division and North American Business Solutions Division. The North American Retail Division includes retail stores in the United States, including Puerto Rico and the United States Virgin Islands, which offer office supplies, technology products and solutions, business machines and related supplies, facilities products and office furniture. The North American Business Solutions Division sells office supply products and services throughout North America, including the United States, Puerto Rico, the United States Virgin Islands and Canada. It operates under the Office Depot and OfficeMax brands, and utilizes other Company and product brand names, including Grand & Toy in Canada. It offers its products under various labels, such as Foray, Ativa, TUL, Realspace, WorkPro, Brenton Studio, Highmark and Viking Office Products.

FINANCIAL RATIOS  of  Office Depot, Inc. (ODP)

Valuation Ratios
P/E Ratio 1.5
Price to Sales 0.1
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 2.1
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate -6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.9%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio 26
Current Ratio 0.1
LT Debt to Equity 62.4%
Total Debt to Equity 64%
Interest Coverage 8
Management Effectiveness
Return On Assets 10.4%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital 17.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.4%
Return On Equity 30.6%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 24.6%
Gross Margin - 3 Yr. Avg. 24.1%
EBITDA Margin 6.4%
EBITDA Margin - 3 Yr. Avg. 3.5%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 1%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -47.9%
Eff/ Tax Rate - 3 Yr. Avg. -9.5%
Payout Ratio 4.9%

ODP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ODP stock intrinsic value calculation we used $11015 million for the last fiscal year's total revenue generated by Office Depot, Inc.. The default revenue input number comes from 0001 income statement of Office Depot, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ODP stock valuation model: a) initial revenue growth rate of 3.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ODP is calculated based on our internal credit rating of Office Depot, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Office Depot, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ODP stock the variable cost ratio is equal to 96.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ODP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.2% for Office Depot, Inc..

Corporate tax rate of 27% is the nominal tax rate for Office Depot, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ODP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ODP are equal to 12.7%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Office Depot, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ODP is equal to -0.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2126 million for Office Depot, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 541.667 million for Office Depot, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Office Depot, Inc. at the current share price and the inputted number of shares is $0.8 billion.

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