Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Pitney Bowes Inc. (PBI): 20% Just Isn’t Enough to Save This Company

The story of a company that’s trying to turn around usually takes on a familiar tone. Tell me if this sounds familiar, “(we are taking) actions to enhance our balance sheet and capital allocation flexibility and exiting some non-strategic businesses.” Let me translate, we don’t have enough cash flow, we need to cut our debt to get out of trouble, and selling some of our businesses is the only option we have. The earlier quote is from the CEO of Pitney Bowes Inc. (NYSE:PBI) Marc Lautenbach, and unfortunately, the company’s business keeps getting worse.

What Could Have Been
Ironically, Pitney Bowes Inc. (NYSE:PBI) competes with several companies that are trying to write their own turnaround stories. For instance, the printing and data management capabilities puts Pitney Bowes in competition with Hewlett-Packard Company (NYSE:HPQ), Xerox Corporation (NYSE:XRX), and Siemens AG (ADR) (NYSE:SI).

Pitney Bowes (PBI)What’s interesting is, Pitney Bowes Inc. (NYSE:PBI) and their peers are all being pushed to the limit by some of the same trends. The rise of tablets and smartphones is changing the landscape. Businesses and individuals used to use desktop computers and keep paper records of everything. However, with e-mail, tablets, and smartphones, paper records are going by the wayside as fast as the traditional desktop.

In addition, businesses and individuals are moving away from physical mail and toward social networking and other methods of communication. When companies begin offering benefits from going paperless, they are essentially taking a shot directly at Pitney Bowes Inc. (NYSE:PBI) and its troubled peers.

Before And After
The biggest difference between Pitney Bowes Inc. (NYSE:PBI) today versus prior to their dividend cut is the stock’s potential return has changed dramatically. About a year ago, Pitney Bowes paid a yield of more than 10%, and analysts expected earnings growth of about 4% to 6%. With a double-digit yield and low single-digit earnings growth, the stock looked extremely cheap.

Things have changed over the last 12 months. Pitney Bowes Inc. (NYSE:PBI) now yields 5.4%, but what is worse is now analysts expect earnings to contract by 6%. This means all things being equal, Pitney Bowes offers investors a total expected return of negative 0.60%. Everyone knows that Hewlett-Packard Company (NYSE:HPQ) has problems of its own. However, the company pays a yield of 2.3%, and analysts expect earnings to stay flat over the next few years. Even a 2.3% return is better than a negative return.

Xerox Corporation (NYSE:XRX) offers a slightly better option, with a yield of about 2.3%, but with an expected growth rate of about 6.6%. Even better still is Siemens AG (ADR) (NYSE:SI) pays a higher yield of 2.7% and earnings growth in the double-digits. In short, on a sheer yield and growth basis, Pitney Bowes Inc. (NYSE:PBI) is a worse value than any of their peers.

Failing to Deliver
Everyone pretty much knows that Pitney Bowes Inc. (NYSE:PBI) is struggling with lower mail volumes. In the past, I could accept this risk as long as they could keep their free cash flow generation intact. However, with every passing quarter, Pitney Bowes is putting investors in a more and more difficult situation.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
This is a FREE report from Insider Monkey. Credit Card is NOT required.