Will Pitney Bowes’s Stock Continue to Skyrocket Higher?

With shares of Pitney Bowes Inc. (NYSE:PBI) trading at around $14.41, is PBI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Is Pitney Bowes experiencing a Dead Cat Bounce, or will the stock build on its recent ascent? Let’s take a look at the basics before delving deeper. Q4 revenue came in at $1.29 billion versus an expectation of $1.28 billion. Q4 EPS came in at $0.56 versus an expectation of $0.51, according to analysts polled by FactSet. This was the first time since 2008 that the company saw year-over-year growth in Management Services. There was also year-over-year revenue growth in International Mailing, Software, and Mail Services. FY2012 revenue came in at $4.90 billion, and FY2012 EPS was $2.21. These were both declines compared to 2011.

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FY2013 guidance is for EPS of $1.85 to $2.00. FY2013 revenue is expected to be flat to 3 percent. Free cash flow is expected to be between $600 and $700 million. Pitney Bowes anticipates growth in the Enterprise Solutions Group, and a decline in the SMB Solutions Group. Revenue is expected to benefit from growth in new e-commerce, print outsourcing, software solutions, and improving trends in equipment sales. A decline in revenue streams will moderate and have less of an impact in H2 2013. However, expenses are likely to be higher in 2013.

Let’s take a look at some important numbers prior to forming an opinion on the stock.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Pitney Bowes is extremely weak. Using debt to fuel growth can work for a limited period of time, but the key word here is “limited.” Pitney Bowes will ultimately have to pay a heavy price for this debt.  

Debt-To-Equity

Cash

Long-Term Debt

PBI

8.74

$461.03 Million

$3.68 Billion

PAY

0.97

$454.07 Million

$1.25 Billion

KNL

1.07

$10.69 Million

$203.00 Million

 

T = Technicals on the Stock Chart Are Mixed  

Pitney Bowes has grossly underperformed VeriFone Systems (NYSE:PAY) and Knoll Inc. (NYSE:KNL) over the past three years. However, Pitney Bowes is outperforming both competitors year-to-date.

1 Month

Year-To-Date

1 Year

3 Year

PBI

35.71%

35.71%

-15.58%

-12.60%

PAY

17.01%

17.01%

-18.67%

95.22%

KNL

8.01%

8.01%

7.16%

56.77%

 

At $14.41, Pitney Bowes is trading above all its averages.

50-Day SMA

11.34

100-Day SMA

12.48

200-Day SMA

13.45

 

E = Earnings and Revenue Have Been Inconsistent        

Earnings and revenue have been inconsistent in a time when most companies, regardless of the industry, have shown steady gains in both areas since 2009. That said, Pitney Bowes is consistently profitable. 2012 results aren’t included in the chart below and can be found in the Catalyst section above.

2007

2008

2009

2010

2011

Revenue ($)in billions

6.13

6.26

5.57

5.43

5.28

Diluted EPS ($)

1.66

2.00

2.04

1.41

3.05

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

1.30

1.34

1.26

1.25

1.22

Diluted EPS ($)

0.85

1.29

0.79

0.50

0.38

 

T = Trends Might Support the Industry

In this economy, trends support almost every industry. As simple as it sounds, trends have become more about continued economic stimulus providing a foundation than anything else, even if that foundation is as sturdy as a rickety wooden bridge. That bridge might remain in place and do its job for a while, maybe even for several years, but it will eventually collapse.

As far as Pitney Bowes is concerned, the company feels as though economic and postal conditions will remain the same in 2013 as they were in 2012. That said, if we look at the Business Equipment industry in what the economic environment should really look like today, then it’s a weak industry.

Conclusion

Aside from the recent pop, Pitney Bowes has performed poorly in a bull market. Debt management is very poor. And growth is sporadic. A 12.20 percent yield might be enticing to investors, but investing in a company with poor debt management and exposure to a weak industry isn’t going to allow for peaceful sleep at night. Pitney Bowes has more room to run, but the shorts will eventually win. Then again, they have already been winning for several years.

Pitney Bowes is a STAY AWAY.

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