The ODP Corporation, known for its office supplies and retail presence as Office Depot, may be harboring a secret weapon within its operational structure - a burgeoning supply chain business called Veyer. While analysts focus on the headwinds facing ODP's B2B and B2C segments, Veyer, with its impressive performance, is quietly emerging as a potential growth engine with serious implications for ODP's valuation.

The recent Q1 2024 earnings call revealed a mixed bag for ODP. While revenue trends disappointed, the company's commitment to its "low-cost model" through Project CORE and the decision to sell the underperforming Varis platform drove increased guidance for adjusted operating income, adjusted EBITDA, and adjusted EPS. Yet, lurking beneath these headline figures is a compelling narrative of Veyer's continued momentum and its potential to reshape ODP's future.

VEYER, in its nascent stage, is already making a mark. Launched in 2023 as a separate business unit, it boasts an impressive nationwide network of distribution centers, cross-dock facilities, a robust global sourcing presence, and a private fleet, enabling next-day delivery to most of the U.S. population. While primarily serving ODP's internal customers (ODP Business Solutions and Office Depot), VEYER has embarked on a strategic expansion, courting external, third-party customers.

The results of this courtship are staggering. Third-party revenue from external customers surged 29% year-over-year, reaching $9 million in Q1 2024. Even more impressive is the 40% year-over-year increase in EBITDA from third-party customers, reaching $3 million. This significant EBITDA growth in its first year of operation demonstrates the inherent profitability of VEYER's model and its ability to attract and service external clients with a compelling value proposition.

Here's where it gets interesting - and potentially overlooked. ODP, in its guidance for 2024, projects a 50% year-over-year growth in VEYER's external EBITDA. This projection, coupled with management's commitment to achieving a "significantly above market" CAGR in the coming years, suggests a strategic focus on rapidly scaling VEYER's external business.

The implications of this strategy are profound. As VEYER expands its external customer base and builds a higher-margin business, it has the potential to dramatically impact ODP's overall valuation. The market, currently assigning ODP a multiple reflecting its retail-heavy structure, could begin to recognize the inherent value of a fast-growing, higher-multiple supply chain business within ODP's portfolio.

Consider this: ODP's current market cap hovers around $1.4 billion. If VEYER, with its projected 50% EBITDA growth and a potential path to a $50 million EBITDA run rate within the next few years, were to be valued independently at a 15x EBITDA multiple (in line with peers like XPO Logistics), it could represent a standalone valuation of $750 million. This figure alone represents over half of ODP's current market capitalization.

The potential for a significant valuation re-rating becomes even more compelling when considering VEYER's continued momentum and its strategic positioning to capitalize on the $861 billion global supply chain market. Management's ambition to achieve a "significantly above market" CAGR in the coming years implies a commitment to capturing a meaningful share of this expansive market.

Veyer's Explosive Growth in Third-Party Revenue

As Veyer expands its reach beyond ODP's internal customers, its third-party revenue is skyrocketing. The chart below depicts this growth based on data from the Q1 2024 earnings call.

While challenges remain in ODP's B2B and B2C segments, the emergence of VEYER as a potential growth engine cannot be ignored. Its rapid growth trajectory, robust EBITDA performance, and the potential for a significant valuation re-rating suggest that ODP may be on the cusp of unlocking a powerful driver of shareholder value. Investors, often fixated on the challenges facing ODP's legacy businesses, might be overlooking the powerful wave building beneath the surface. Is VEYER about to explode onto the scene and reshape ODP's future? Only time will tell, but the evidence suggests a compelling story is unfolding.

ODP's Financials: A Deeper Look

ODP's financial performance reveals a mixed picture. While revenue has declined in recent quarters, the company has maintained a strong focus on profitability and cash flow generation.

Reference: The ODP Corporation Q1 2024 Earnings Conference Call

"Fun Fact: Office Depot, under the ODP umbrella, holds the record for the largest rubber band ball, weighing over 4,000 pounds! This quirky fact underscores the company's long history and connection to office supplies."