Pitney Bowes Inc. (PBI)

Profile

Pitney Bowes Inc. is a global provider of software, hardware and services to enable both physical and digital communications and to integrate those physical and digital communications channels. The Company offers a range of equipment, supplies, software, services and solutions for managing and integrating physical and digital communication channels. Many of the company’s solutions are delivered on open platforms to best organize, analyze and apply both public and proprietary data to two-way customer communications. Pitney Bowes includes direct mail, transactional mail and call center communications in its solution mix along with digital channel messaging for the Web, email and mobile applications.

Company News

Shares of Pitney Bowes (PBI) were rising sharply this week on the back of the release of its second-quarter earnings report and the sale of its Management Services business.

Pitney Bowes Inc. (NYSE:PBI) posted a relatively strong second quarter earnings report. It  beats the Street’s earnings consensus in a big way by posting earnings of $0.52 per share against the $0.43 consensus. Quarterly earnings increased 1.9 percent year over year, while total revenue decreased 0.7 percent for the quarter ending June 30. The company now expects revenue of $4.02 billion to $4.06 billion and $1.62 to $1.77 in EPS for the full year.

Apollo Global Management LLC (NYSE:APO) agreed to acquire Pitney Bowes Inc.’s (NYSE:PBI) management-services business for about $400 million, in a deal expected to allow the unit to operate as a more focused, stand-alone company. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2013.

Technical Analysis

Pitney Bowes Inc. (NYSE:PBI) closed at $17.46 on Friday, jumped more than 21.08 percent from July 29 to Aug 2 on heavy volume. Technical indicators signaled the bullish sign as the 10-day moving average has crossed above 50-day moving average, with MACD in positive territory and RSI is increasing to 78.45. The high of $17.51 is resistance for the next upside move. If the stock can break through this level, the chart pattern indicated that the price would rise to $20.45 in short term.

Fundamental analysis

We analyze the several different “fundamental” aspects: Growth, Profitability, solvency and efficiency.

Growth

Pitney Bowes Inc. (PBI) reported second-quarter 2013 pro forma earnings per share of 52 cents. Quarterly earnings were up 1.9% year over year from 51 cents per share. Total revenue for the second quarter was $1.16 billion, down 0.7% from $1.17 billion in the prior-year quarter. Revenue guidance was lowered from the previous guidance of flat to up 3%.  The company expects earnings per share from continuing operations to be in the range of $1.62 to $1.77 a share, as against the $1.85 to $2.00 range mentioned previously.

In the case of Pitney Bowes Inc., the average growth came in lower than the industry average and it has a growth score better than 40% of the stocks we rate.

Profitability

Pitney Bowes Inc. (PBI) incurred total SG&A expense of approximately $376.6 million in the second quarter versus approximately $380.7 million in the second quarter of 2012. R&D expense was $31.5 million versus $33.8 million. Income from continuing operations of the company was $30.6 million compared with $161.1 million in the prior-year period. Shareholder’s equity was $22.3 million compared to prior-year figures of $110.6 million.

Although, the average profitability of Pitney Bowes Inc. came in lower than the industry average, it has a profitability score better than 80% of the stocks we rate.

Solvency

In second quarter, Pitney Bowes Inc. (PBI) has cash and cash equivalents of $608.6 million, long-term debt of $3.6 billion and shareholder’s equity of $22.3 million compared to prior-year figures of $913.2 million, $3.64 billion and $110.6 million.

Generally speaking, companies with high levels of debt are less likely to show rapid price appreciation compared to companies with little or no debt. Companies with large amounts of debt must use a larger portion of their revenues to service the interest on their debt or, worse yet, must use their cash reserves to meet these obligations.

The debt-to-equity ratio of Pitney Bowes Inc. came far larger than 2 and was larger than last year, which means that the financial risk of the company is Pretty higher.  It has a solvency score lower than 80% of the stocks we rate.

Efficiency

In second quarter, Pitney Bowes Inc. (PBI) has total revenue of $1.158 million, total asset of $7,133 billion and Property, plant and equipment of $352 million compared to prior-year figures of $1.166 million, $7,860 billion and $385 million.

In the case of Pitney Bowes Inc., the average efficiency came in lower than the industry average and it has a efficiency score better than 60% of the stocks we rate. That means the company has generated more income per dollar of capital than 60% of the companies we review.

Conclusion

Pitney Bowes is making solid progress on its transformative journey to improve the growth profile and profitability of the business. The company is becoming more efficient, flexible and focused to meet the changing needs of its clients. In addition, it has strengthened its balance sheet by further reducing debt and continue to drive operational excellence that will further enhance client and shareholder value.

Overall, the company’s strengths can be seen in its robust profitability and higher efficiency.  We feel these strengths outweigh the fact that the company shows low solvency ability. Moreover, technical analysis indicates that it still has good upside potential despite the fact that it has already risen this week.