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It seems that every screen I run searching for companies with unfairly low valuations accompanied by above average dividend yields returns a list that includes Pitney Bowes Inc (NYSE:PBI). By some metrics, this stock appears to be a screaming bargain. Both the TTM and forward P/E ratios are under 6. The company is profitable and it appears it will remain so although EPS is in a downtrend. Analysts have a target price of $15.67, which is 48% higher than the current price of $10.57. The company additionally pays a dividend that is currently yielding over 14%. And yet despite these generally positive indicators, the stock price continues to spiral downward while failing to impress.

Positive Indicators

One of the primary numbers that is attracting attention to this company is the outrageous dividend yield of over 14%. Generally when a company's yield climbs like this as a result of the stock price falling, the dividend is often cut before long as a result of the underlying factors which caused the price drop in the first place. In this particular case, it is difficult to tell if the yield is safe or not. Seeking Alpha Contributor Matthew Frankel outlines an argument in which the company should be able to get past the recent restructuring effort while protecting the current payouts. If this is the case, then the dividend would remain a legitimate reason to go or remain long on this stock.

Next, there are several analyst indications that we should consider this stock as a long candidate. This includes the price target of over $15, a consensus opinion between Strong Buy and Buy, and an institutional ownership rate of 88%. Saibus Research provides an article outlining how several Value Managers believe Pitney Bowes will continue to provide the current dividend payouts. Regardless of whether or not these institutional analysts are correct in their assessment, we should at least consider the opinion of those who have access to more information concerning this company. The fact that so many shares are owned at that level is a positive indicator of perceived stability, and the fact that no analyst provides an opinion lower than Buy is also a positive indicator. Could this many people be wrong? Yes, but we will typically see at least a few get it right before a stock crashes.

Finally, there are some general valuation and technical numbers which indicate the stock could be a bargain at this point. As previously discussed, both the trailing and forward P/E ratios are under 6. Any time a stable and profitable company displays a P/E well into the single digits, I pay attention. Sometimes this indicates a buying opportunity, although sometimes it really indicates that there is trouble on the horizon and the numbers just have not caught up yet. Pitney Bowes has a current RSI of 35 indicating it is in the oversold territory, but not to an extreme amount. This could mean that demand will increase in the coming days or weeks, although it could also continue downward before any real recovery begins.

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Negative Indicators

There is a significant short interest in this stock. Several supporters will surely point to this as a potential positive factor in the hopes that there will be a "short squeeze." If it becomes clear that the company will emerge profitably and the dividend yield attracts more investors, this could drive the price upwards. However, at this point in time, the short interest is a factor which should cause some uneasiness.

Next, this company is reporting declining earnings and the stock price has fallen significantly. EPS in 2011 was $2.35, and if all goes according to projections, we will see right around $2.00 for 2012 -- almost a 15% decrease. The projection for 2013 is $1.89, representing a growth rate of -5.5% from 2012. The stock price has paid dearly for this, as it is down 43% over the past 12 months. Yes there is potential for a nice rebound once the fall stops; however, it is very difficult to tell where the bottom might actually be.

There is additional worry that technology is quickly making this company's products and services obsolete. As a company best known for its work related to mailing equipment and services, many investors worry that future advances in electronic communications will threaten future earnings and profits.

Possible Strategies

If you happen to believe that Pitney Bowes will get past this drop in share price, then it could represent quite a bargain. Possible strategies could involve taking a long position using stock or options, or a combination such as a covered call. There is potential for this stock to reverse the downward trend, and even if it tracks sideways the dividend presents a means to help mitigate further poor performance.

Alternately, it might be difficult to make an argument to actually short the stock at this time given the drop in price that has already occurred and the continued downtrend. Although a short position could be built using options, it might be more prudent to simply stay out of the stock at this time if you hold a more bearish view.

The Bottom Line

Pitney Bowes currently presents an interesting case for potential investors. While there are some numbers that make the stock seem like a bargain, there are other indicators that warn investors that things may not be as rosy as they seem. If you believe that the dividend is secure at current levels and that the stock is at or near its bottom, you may wish to conduct a further examination to see if it fits your own criteria.

As always, take the time to do your homework and be careful out there.

Source: Pitney Bowes: A High Yielding Underachiever