Is the Pitney Jitney About to Crash?

With shares of Pitney Bowes Inc. (NYSE:PBI) trading at around $15.09, 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

The most important factors are revenue and EPS declines. While this has been a common trend throughout the broader market of late, that doesn’t make it excusable. Many strong companies are now seeing revenue and EPS declines, but is Pitney Bowes really as strong as many people think?

After perusing many customer service reviews, it looks as though there’s an interesting trend at Pitney Bowes, and it’s an indication that the company’s culture could be improved. Many customers have contacted Pitney Bowes about an issue and promises for fixing the issue were unresolved. However, when that customer called back a second time to complain, Pitney Bowes went into high gear and fixed the issue with flying colors. This is an odd pattern, so another area of the company needed to be examined.

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The next stop was Glassdoor.com, which is a website where employees rate their employers. On a scale of one to five with five being best, Pitney Bowes has an employee satisfaction rating of 2.7, which isn’t terrible, but it’s subpar. While 75 percent of employees approve of CEO Marc Lautenbach, only 32 percent of employees would recommend the company to a friend. The latter is a very low number. Common complaints from employees include poor upper management where there is a lot of turnover, poor training, and the company being behind the ball when it comes to technological innovation. If Pitney Bowes is can’t innovate faster, then it will continue to decline.

Let’s take a look at some comparative numbers. The chart below compares basic fundamentals for Pitney Bowes, Canon Inc. (NYSE:CAJ), and Xerox Corporation (NYSE:XRX). Pitney Bowes has a market cap of $3.06 billion, Canon has a market cap of $43.21 billion, and Xerox has a market cap of $11.34 billion.

PBI

CAJ

XRX

Trailing   P/E

6.87

15.42

10.51

Forward   P/E

7.82

15.11

7.79

Profit   Margin

9.08%

6.45%

5.34%

ROE

136.76%

8.50%

10.03%

Operating   Cash Flow

$660.19 Million

$4.88 Billion

 $2.58 Billion

Dividend   Yield

9.90%

4.40%

2.60%

Short   Position

N/A

N/A

1.40%

 

The fundamentals look solid, but is there more to the story? Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Weak       

The debt-to-equity ratio for Pitney Bowes is much weaker than the industry average of 0.30. This might be okay in the current economic environment, but what happens when interest rates eventually increase? This is especially worrisome considering revenue has slowed.

Debt-To-Equity

Cash

Long-Term Debt

PBI

9.87

$949.89 Million

$4.02 Billion

CAJ

0.00

$8.83 Billion

$50.61 Million

XRX

0.71

$1.25 Billion

$8.49 Billion

 

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T = Technicals Are Mixed    

Pitney Bowes has underperformed the market by a wide margin over a three-year time frame. However, it has been a superstar year-to-date. The impressive yield has been a big bonus. All that said, is this type of performance sustainable? We’ll get to that in the Conclusion section.

1 Month

Year-To-Date

1 Year

3 Year

PBI

-2.71%

45.76%

1.03%

-22.98%

CAJ

1.51%

-5.99%

-18.83%

-15.55%

XRX

4.97%

33.75%

18.42%

-8.70%

 

At $15.09, Pitney Bowes is trading above all its averages.

50-Day   SMA

14.14

100-Day   SMA

12.70

200-Day   SMA

13.22

 

E = Earnings Have Suffered a Setback                      

Revenue and earnings have both suffered setbacks in 2012.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

6.26

5.57

5.26

5.12

4.90

Diluted   EPS ($)

2.00

2.04

1.41

3.05

2.21

 

When we look at the last quarter on a year-over-year basis, we see flat revenue and a decline in earnings. Revenue also declined on a sequential basis, but earnings improved.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

1.19

1.26

1.25

1.22

1.19

Diluted   EPS ($)

1.29

0.79

0.50

0.38

0.54

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Do Not Support the Industry

The mailing services industry is in a tailspin. Pitney Bowes is attempting to transform itself into a company that combines equipment and software.

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Conclusion

Negatives for Pitney Bowes include revenue and EPS declines, poor stock performance in a bull market over the past several years, debt concerns, subpar upper management, slow innovations, and an overall poor culture. Positives include strong cash flow, good valuation, consistent profits, an excellent yield, and recent momentum in the stock price. This momentum has the potential to continue, but something is missing at Pitney Bowes. It seems as though the world is moving at 80 miles per hour while Pitney Bowes is moving at 55 miles per hour. Pitney Bowes should eventually figure out solutions to their current problems, but at the moment, risks outweigh rewards.

Pitney Bowes is a STAY AWAY.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.

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