The small, but valuable, office equipment industry is a solid place for investors to reap on capital gains.
Only five companies above one billion dollars in market-cap encompass this industry, but only one of these companies really stands out with its business model and fundamental statistics.
Pitney Bowes (PBI) acknowledges this required background.
It is true that companies in this industry like Xerox and VeriFone may be more recognizable to the consumer, but regardless of brand, Pitney Bowes has the strong potential to continue its financial success and engender profits for investors.
Before researching the financial support, it is always important to examine the business model of a company.
According to Reuters, Pitney Bowes, "is a provider of mail processing equipment and integrated mail solutions.
The Company offers a full suite of equipment, supplies, software and services for end-to-end mail stream solutions, which enable its customers to optimize the flow of physical and electronic mail, documents and packages across their operations.
" Performing these duties under two respective sects, Mailstream Solutions and Mailstream Services, Pitney Bowes controls a large market share of shipping supplies and equipment from company to company.
More specifically, revenue from Mailstream Solutions comes from, "the sale, rental and financing of the Company's mail finishing, mail creation and shipping equipment," and revenue from Mailstream Services comes from, "secure mail services; reprographic, document management services, and litigation support and eDiscovery services (acquired in 2006).
" With such a wide variety of inelastic services and solutions, Pitney Bowes's business plan is strongly equipped to continuously do well, revenue-wise, during times of both economic recovery and recession.
In addition, since Pitney Bowes, a Connecticut-based company, has sales not only from the United States, but from international nations as well, a lower dollar will work in favor for further earnings.
Nations outside the United States will be more willing to purchase United States services and goods.
And despite a lagging economy in United States, companies like Pitney Bowes will be a still benefit.
Therefore, there is another example of why purchasing shares of this company will be advantageous to any portfolio at any time.
To further illustrate this example, through seven months of 2007, Pitney Bowes has appreciated share price-wise about two percent--not substantial--but not with too much volatility as suggested by the market and some of the company's competitors.
In fact over the past five years, Pitney Bowes has appreciated or remained flat with a 10% rise in 2006.
It's true that competitors Diebold and VeriFone are more volatile and have the possibility of more upside in a given year, but during times of uncertainty in the US economy (such as now), investing in a more steady company like Pitney may be a wiser decision.
While the provided information is a great business model for a company in the office equipment industry, other competitors of Pitney Bowes, such as Xerox, have similar plans.
What really differentiates Pitney Bowes from these rivals is its fundamentals.
Since there is not that many companies in this industry, Pitney Bowes with a market-capitalization of 10.
28 billion and trailing revenue of $5.
73 billion is second in the industry regarding both these categories.
Nevertheless, despite reporting such large sales figures every year, margins are fairly high for this company.
According to Reuters, gross margins and operating margins for the trailing twelve months at a respective 53.
88% and 16.
03% are both significantly above industry averages.
In addition, operating margins for Pitney Bowes are also higher than the five year average of 14.
75%.
While gross margins are below the five year average of 54.
81% for this company, the same trend can be said about the industry, including market-cap rivals such as Xerox and Diebold.
However, what is surprising about Pitney Bowes's margins is how they beat lower revenue-performing companies like Diebold ($2.
9B) and VeriFone ($0.
6B), which reported gross margins of 23.
56% and 42.
02% respectively.
In addition, trailing sales figures at 7.
79% also beat the five year average for the firm at 6.
81%.
And while these numbers are (appropriately) below the lower-revenue industry average, a trailing EPS estimate of 30.
95% not only beats the company's five year average of 3.
85%, but handily beats industry averages including competitors VeriFone (-29.
84%) and Diebold (6.
46%).
What is even more special about these numbers is that capital expenditures, at a five year growth rate at 5.
06%, is also higher than the industry average at 4.
66% and competitors Xerox and Diebold which both reported negative figures.
More capital expenditures now, while hurting cash flow (depreciation) and free cash flow, do allow more cash to be available for the company to use in the form of helping the investor by process of buybacks or dividend hikes.
Therefore, while the margins and growth figures are not outstanding, given the revenue and placement among market-cap competitors, Pitney Bowes is during fairly well.
Along with strong growth support, Pitney Bowes is also quite undervalued.
Looking at the forward P/E ratio, according to Reuters, of 15.
92, this number easily beats the industry average of 23.
55.
In addition, the 2007 forward multiple for Pitney Bowes is also below the same ratio for Diebold (23.
10) and VeriFone (22.
86).
Moreover, Pitney Bowes also has a lower price to sales forward ratio of 1.
68 compared to VeriFone's figure of 3.
86.
What is also quite surprising is that Pitney Bowes has an enterprise value to EBITDA of 9.
204 which is lower than Xerox (10.
243), VeriFone (17.
772) and Diebold (14.
332).
Combining both growth and undervaluation into the PEG ratio, Pitney Bowes sees a number of 1.
42, given a five year growth rate, which is below Xerox's figure and fairly close to the other two competitors.
Therefore, there is evidence that Pitney Bowes is not only growing quite sound, but is fairly undervalued as well.
Looking at a few more intangible items, it is clear that Pitney Bowes's CEO Murray D.
Martin and his 34,454 employees are using shareholder equity extremely well.
Last year, Pitney Bowes saw an ROE of 73.
18%: a number not only above the five year average of 44.
14%, but significantly above the industry average of 32.
42%.
Along with an ROI of 11.
26% and an ROA of 6.
61%, which are above each figure's respective five year average, Pitney Bowes's numbers easily beat industry averages and every one of the aforementioned competitors.
The current ratio of 0.
82 is a bit weak in the company's most recent quarter, but asset turnover of 2.
83 and inventory turnover at 11.
14 are quite good, where the latter beats both industry at all aforementioned company figures.
More enticing is the dividend yield of 2.
82% which Pitney Bowes provides.
Not only is this number greater than the industry and of all market-cap competitors, but a high dividend during times of economic uncertainty is an excellent asset to hold onto until general domestic indicators become clearer.
Overall, Pitney Bowles has a strong business model, good growth fundamentals, and an oversold valuation.
Technically, there are some strong indications to purchase shares of this company now as well.
The share price currently is a few points away from crossing its 50 and 200 day SMA which both are converged, indicating a new upward trend may be imminent.
The MACD also shows a recent cross-provided a lagging, but still useful entry point for this company.
While the RSI and Stochastic figures are closer to overbought than oversold, Parabolic SAR is still above share price which means now is a great time to purchase this stock.
There were not recent divergences apparent when looking at a three month chart.
Therefore, given the above information, Pitney Bowes would be a great addition to any investor's portfolio.