Pitney Bowes Inc. Annual Valuation – 2015 $PBI

Pitney_Bowes_Logo.svgBenjamin 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 or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  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 Pitney Bowes Inc. (PBI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Pitney Bowes Inc. is a global provider of technology solutions serving small, mid-sized and large firms. The Company offers solutions for direct mail, transactional mail, customer engagement management and analytics and e-commerce parcel management, along with digital channel messaging for the Web, email and mobile applications. The Company develops and invests in products, software, services and solutions. The Company’s business is organized around three sets of solutions: Small and Medium Business Solutions, Enterprise Business Solutions and Digital Commerce Solutions. The Company markets products and services through sales force, direct mailings, outbound telemarketing and independent distributors and sell to business, governmental, institutional and other organizations. The Company conducts research and development, manufacturing and assembly, product management, IT and other activities at Global Technology Center located in Danbury, Connecticut.

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 = 3/5

  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 - PASS

Valuation Summary

Key Data:

Recent Price $23.17
MG Value $14.53
MG Opinion Overvalued
Value Based on 3% Growth $24.30
Value Based on 0% Growth $14.25
Market Implied Growth Rate 2.66%
NCAV -$17.88
PEmg 13.82
Current Ratio 1.17
PB Ratio 60.60

Balance Sheet – December 2014

Current Assets $2,760,000,000
Current Liabilities $2,361,000,000
Total Debt $2,927,000,000
Total Assets $6,486,000,000
Intangible Assets $1,755,000,000
Total Liabilities $6,408,000,000
Outstanding Shares 204,000,000

Earnings Per Share

2014 $1.64
2013 $0.70
2012 $2.21
2011 $3.05
2010 $1.41
2009 $2.04
2008 $2.00
2007 $1.66
2006 $0.47
2005 $2.27
2004 $2.05

Earnings Per Share – ModernGraham

2014 $1.68
2013 $1.76
2012 $2.24
2011 $2.18
2010 $1.67
2009 $1.76

Dividend History


Pitney Bowes Inc. is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the the low current ratio, the insufficient earnings growth over the last ten years, and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2010 to only $1.68 for 2014.  This level of demonstrated lack of growth doesn’t support the market’s implied estimate of a 2.66% annual earnings over the next 7-10 years, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Pitney Bowes Inc. (PBI) for greater perspective!

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 Inc. (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.

Disclaimer:  The author did not hold a position in Pitney Bowes Inc. (PBI) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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