ODP Corp.: Can Strong Valuation Metrics Overcome Near-Term Headwinds?

Investors often face a paradox when analyzing stocks like ODP Corp. (ODP): How can a company with a Zacks Rank #1 (Strong Buy) rating underperform its sector and face declining earnings? The answer lies in dissecting the interplay between short-term risks, undervaluation metrics, and the broader industry dynamics. Let's break down whether ODP's fundamentals justify its “Strong Buy” status—or if the market is right to question its trajectory.

The Contradiction: Zacks Rank #1 vs. Sector Underperformance

ODP, operator of Office Depot and OfficeMax stores, currently holds Zacks' top ranking despite facing year-over-year declines in earnings (-41% for Q3 2025) and revenue (-8.39%). While its Retail - Miscellaneous sector ranks in the top 24% of all industries (Zacks Industry Rank #57), the broader retail landscape remains challenged by shifting consumer preferences and inflationary pressures.

This creates a critical question: Why does Zacks view ODP as a “Strong Buy” when its own earnings are deteriorating and its sector is under strain?

Near-Term Risks: Earnings Declines and Sector Headwinds

The Q3 2025 earnings forecast paints a cautionary picture:
- EPS is projected to drop to $0.33, a stark contrast to the +25% average annual gain historically seen in Zacks Rank #1 stocks.
- Full-year 2025 revenue is expected to fall 5.83%, compounding concerns about top-line resilience.

The retail sector's struggles, particularly in office supplies, are well-documented. E-commerce disruption, supply chain volatility, and the lingering shift toward hybrid work models have eroded demand for traditional office products. ODP's physical store model faces direct competition from Amazon and other online retailers, further squeezing margins.

Valuation: A Compelling Discount to Peers

Despite the near-term challenges, ODP's valuation metrics scream “opportunity”:
- Forward P/E of 5.99 vs. its industry's 13.17: Investors are paying less than half the sector's average for each dollar of earnings.
- PEG Ratio of 0.43 vs. the industry's 2.63: This suggests the stock is undervalued relative to its growth potential.

These figures imply that even modest earnings recovery could trigger a sharp rerating. Zacks' emphasis on ODP as one of the “7 Best Stocks for the Next 30 Days” further underscores its belief that near-term headwinds are temporary.

The Case for ODP: Why the Strong Buy Rating Holds Water

1. Industry Positioning Matters: While the retail sector faces headwinds, ODP's Zacks Industry Rank #57 places it in the top quarter of all industries. This signals a structural advantage over weaker competitors.
2. Analyst Sentiment: Consensus estimates for ODP's EPS have remained stable over the past month, avoiding the downward revisions that often precede prolonged declines.
3. Catalyst Potential: The inclusion in Zacks' 30-day “Most Likely for Early Price Pops” list hints at technical momentum. Historically, such picks outperform the market by over 2X annually.

Investment Thesis: Risk-Reward Balance

The key trade-off is clear:
- Risk: Near-term earnings could miss expectations, and the retail sector's struggles might deepen.
- Reward: A Forward P/E of 5.99 offers significant downside protection, while a stabilization in revenue or margin improvements could unlock upside.

For investors with a 6–12 month horizon, ODP's valuation and Zacks' bullish stance make it a compelling contrarian play. However, those focused on short-term gains should proceed with caution.

Final Take: A Stock to Monitor Closely

ODP Corp. exemplifies the “value trap vs. undervalued gem” dilemma. While its sector underperformance and declining earnings are valid concerns, the stock's valuation and Zacks' analytical framework argue for patience. If ODP can stabilize its core business or pivot effectively to online/digital services, the current Zacks Rank #1 rating could prove prescient.

Actionable Idea:
- Buy: For long-term investors willing to bet on a rebound, with a focus on valuation multiples.
- Hold: For short-term traders, given the near-term earnings risks.

Investors should monitor Q3 earnings closely and watch for catalysts like margin improvements or strategic moves to offset retail headwinds.

In a market where patience is rewarded, ODP's mix of affordability and analytical support makes it a stock worth considering—even in the face of current challenges.