Pitney Bowes Inc (PBI) Annual Valuation

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Baxter International fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): 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. It conducts its business activities in seven reporting segments within two business groups: Small & Medium Business Solutions (SMB Solutions) and Enterprise Business Solutions (EB Solutions). It maintains field service organizations to provide servicing for customers’ equipment, usually in the form of annual maintenance contracts. It establishes credit approval limits and procedures of the customer and the type of product or service provided to control risk in extending credit to customers. In February 12, 2014, Pitney Bowes Inc acquired the remaining 30% interest in Pitney Bowes Semco Equipamentos e Servicos Ltda.

PBI data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price	$25.09
MG Value	$6.90
MG Opinion	Overvalued
Value Based on 3% Growth	$25.48
Value Based on 0% Growth	$14.94
Market Implied Growth Rate	2.89%
NCAV	-$18.54
PEmg	14.28
Current Ratio	1.27
PB Ratio	26.91

Balance Sheet – 12/31/2013

Current Assets	$2,838,200,000
Current Liabilities	$2,227,800,000
Total Debt	$3,346,300,000
Total Assets	$6,772,700,000
Intangible Assets	$1,855,300,000
Total Liabilities	$6,584,300,000
Outstanding Shares	202,080,000

Earnings Per Share

2013	$1.49
2012	$2.16
2011	$1.73
2010	$1.50
2009	$2.08
2008	$2.13
2007	$1.63
2006	$2.51
2005	$2.27
2004	$2.05

Earnings Per Share – ModernGraham 

2013	$1.76
2012	$1.90
2011	$1.79
2010	$1.87
2009	$2.07
2008	$2.09

Dividend History

PBI Dividend data by YCharts

Conclusion:

Pitney Bowes is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, there has not been sufficient earnings growth over the ten year historical period, and the PB ratio is too high.  For the Enterprising Investor, there is too much debt relative to the current assets and there has been insufficient earnings growth over the five year historical period.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities, such as by reviewing 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears overvalued after seeing its EPSmg (normalized earnings) fall from $2.07 in 2009 to $1.76 for 2013.  This lack of growth clearly does not support the market’s implied estimate of earnings growth of 2.89%, and the ModernGraham valuation model returns an intrinsic value estimate that is much lower than the current price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Pitney Bowes (PBI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

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Disclaimer:  The author did not hold a position in Pitney Bowes (PBI) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.