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Pitney Bowes Is A Healthy But Overvalued Company

Apr. 05, 2021 11:15 AM ETPitney Bowes Inc. (PBI)112 Comments
True Orion profile picture
True Orion


  • The multiples that the company is trading at suggest that it is overvalued.
  • We cannot understand why the market assigns such large multiples in the company while at the same time earnings are declining.
  • As a company with a 100-year history, Pitney Bowes does well to ride the wave of internet economy, but, at the current price, we believe it is overvalued.

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True Orion profile picture
True Orion is comprised of two notions. Orion, the ancient mythical hunter, and truth. The neverending pursuit for truth. This is my motto. I believe that knowledge is key to achieving oversized returns in a financial as well as in a personal level. As a private investor, with a real estate investment educational background and with more than 15 years of investing experience in the real estate and stock market, I can tell you that. Here in SA, I provide my readers with articles regarding specific stocks, or market analysis. My main focus is in REITs, shipping and value/growth smallcap stocks. Megacaps (usually) leave me tremendously indifferent. The purpose of my articles is to express my ideas and get them tested by reality, while at the same time gain additional knowledge throughout the process. As I said above, the notion of the neverending pursuit of truth is hidden behind True Orion. If you like my content, don't forget to follow me, like, share and comment. As a contributor affiliated with SA, signing up for the SA's premium annual subscription plan by clicking here, you are supporting my efforts even more.

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Comments (112)

No one can dispute that this is a very solid quarter, the obvious key here is cost management, but here’s the reality, PBI executed in every facet of their business. On top of that PBI is a cyclical business that have their best quarter in the forth. With automation and other improvements, we are looking at an awesome 4th qtr. this is easily a 4b revenue company. Price reaction aside the business is solid.
disdaniel profile picture
Market message to management seems crystal clear. Time to spin out the ecommerce segment--shares would probably double overnight.
Out_on_a_limb profile picture
@disdaniel, not really. The key to the sell-off is in this answer from the CEO: "we’re pleased with the progress that the Global Ecommerce team is making to get the profitability and being EBITDA profitable for the year is an important milestone, but it’s just that, that’s a milestone, we have more work to do. My expectation is we’re on a trajectory as we exit this year to be EBIT profitable next year (...)

So we like the trajectory. I would also point out we had 400 – nearly 400 basis points of EBIT improvement year-to-year. If we do that for the next couple of years, we’re on the long-term model in 2024 as we have outlined. So good progress, more to do."

The market expected close to EBIT positive now. This is not planned before end of 2021. An extra year. This is what Wall Street didn't like.
disdaniel profile picture
@Out_on_a_limb A spin out would help management of each business focus on what is essential. That would unlock value that is currently trapped.
Nobody wants to hear management say "we will fix it next year or the one after". All my shares (75k+) are voting against management until there is a spin.
Out_on_a_limb profile picture
@disdaniel, the 2 lines of business are joined at the hip. A spin off would be worse at this stage.
PB strategy not clear Sells labor intensive PBMS; sells cross-border mail/packet business; expensive re-brand as a tech company; invests in software businesses; sells software/tech businesses; re-enters cross-border market and labour intensive ecommerce logistics; most hires manual labor; low market share in ecommerce; scale economies against ecommerce competitors unlikely;
@Stamford54 but is it still cheap even what you said are all true?
Out_on_a_limb profile picture
@Stamford54, wrong. PBI is a backbone solution. It doesn't do the last mile which is the most expensive part. It is the same strategy than bulk mail shipping. Little manual labor, mostly hardware and software but as a service.
Killed earnings.
@ThreeA Global E-Commerce will be a $2-2.5 billion business very soon - 10% EBIT margin on that is $250 mill. SendTech and Presort are performing better than expected too.
@ThreeA fairly good earnings. crazy how the market is reacting to it.
@soguilk i am trying to load up
Something happening today on no news. Looks like either shorts getting out before earrings or someone knows something...
Free Cash Flow 50 profile picture
@SantosHelper UPS reported great numbers and investors are expecting the same from PBI on Friday. Given how cheap the stock is, it could really pop.
linska profile picture
@Free Cash Flow 50
Back to reality this morning, hopefully good news shortly.

Not at all people.
This happens every time the day before it reports.
Look at a one year chart.
This is a pattern that repeats itself over the entire quarter to quarter.
Fundamentals and technicals. Tomorrow morning should be explosive to the upside.
Keep this in mind and follow this pattern it’s a clear road map for now.
UPS just crushed earnings based on e-commerce delivery strength. A bullish sign for Friday's report?
"Pitney Bowes has today launched its online parcel delivery platform, SendPro Online, in Australia...The service’s launch in Australia is the first time SendPro has been available outside of the United States."

I’m putting a $22 price target on PBI by 1/22.

That will give it a market cap of $4 billion which at that time will be less than one time annual sales. The price target is very open ended as this moves from small cap to large cap and institutional interest will grow.

More importantly the current trend line up will take it there just like it followed the very narrow range down the last 7 years.

This trend line will be much sharper/steeper on the way up.

High volume days are now up days not down days followed by more up days so it’s not distribution.

Weak hands are giving shares to stronger hands. Expect to see a spike as high as $26 by 1/22. Just like we’ve already seen a spike to over $15 already. These will be big large moves up.

Should be fun.
@Turnaround Value any idea why short interest is down so drastically over the last couple months? we won't be able to rely on shorts getting burned but rather on funds finding this and buying it.
Analyze This profile picture
@Turnaround Value I turn "off" investment ideas when value is determined as a function of revenues rather that metrics based upon profitability or cash flow. 90% of the time valuations based upon revenues are used when a company is not profitable.
@Analyze This

Interesting. STMP Price to FCF ratio is at 16. PBI is at 7.
I too turn "off" investment ideas when folks cherry pick data points.
I run a company that works with marketing mail which is the market where the Send Pro Plus product serves. I’ve got 35 years in the industry.

There is a major shift taking place with online companies, a segment of the market that’s being fueled by Shopify and Amazon and Etsy. Shopify launches a new business online every 28 seconds.

All these companies are turning to offline marketing for their customer acquisition campaigns. Bambas for example which sells socks online does huge volume in direct mail. These new economy companies are here to stay and they are all using fulfillment to ship products to online customers.

These companies will move away from Stamps.com and Ship Station and in increasing numbers shift to Send Pro Plus. This product from PBI was created to more effectively compete against these companies more effectively. Send Pro Plus is a more robust online platform and side by side handily beats the competition.

If you look for yourself at the comparison chart from Stamps.com they compare products, but they compare it to Send Pro and not their latest product release. The fine print even says that the comparison is based on 2017 data.

So besides a massive increase in fulfillment business that’s been accelerated by Covid and that’s not changing as it is now the norm, marketing mail overall will rise for these new economy retailers but they will beat numbers as they take market share from Stamps.com and ShipStation.

This new leg up is a reversal of a downward trend and it’s not going to revert to the mean, looking at a 5 year chart shows this clearly.

Marketing mail from a shift to offline marketing for customer acquisition combined with an aggressive push for Send Pro Plus and fulfillment migrating to a better platform gives PBI a three legged stool for growth.

Watch the quarters ahead and you’ll see this play out.

The 2020 annual report was pre pandemic. They didn’t have the visibility to know what lie ahead.

There’s no going back now.
@Turnaround Value

April 30th ER call, just a few weeks away, will validate/invalidate this author’s hypothesis.

Which part will be invalidated? Specifically?

I see nvm you were making a comment regarding future statements from the Company.
The article is complete drivel. Don't waste your time even challenging it. Seems like the writer has some lame software from the 1980's that spits out tickers screening expensive on backward looking data. However, I see a lot of intelligent comments below from people who actually know PBI. Good for them!

This is my favorite part of the entire article "This article was written for information purposes only. You should not, in any case, take the contents of this article to be an urge to buy, hold or sell securities."
@Dundurn40 I don’t think it’s a complete drivel. I think how it’s written is why the stock is depressed below $10.00. If PBI don’t show continuing organic growth and variable cost control then this writer is correct. Q4 showed razor thin margins and that’s with the pandemic. While I am long in PBI, the company needs to show improved GPM on e commerce, maintain their cash cows, all while continuing to organically grow revenue post pandemic. Q4 earnings transcript have shown that this is a strong possibility. The CEO’s latest open letter have also alluded this possibility. As he boringly calls it Pitney Bowes 2.0 LOL.
The author wrote: "Right now, estimates for Q1 2021 earnings are $0.05 per share....Even if we assume that the company will report $0.30 EPS for the full year 2021, the shares are still overpriced as we wrote above."

That's nice, except the Earnings tab on Seeking Alpha has the 2021 earnings at 34 cents and the 2022 earnings at 57 cents. It's misleading to take a potshot at the quarterly earnings of 5 cents, when the annualized earnings are going to be 57 cents.
Either this author is clueless and completely incompetent, or it was a hit piece. I think its more likely that it was a hit piece, because I just cannot understand how SeekingAlpha could even allow this to be posted otherwise.
True Orion profile picture
@Ultrabase Hello and thank you for your comment. The purpose of the 5 cent figure was to find similarities with FY 2020. The phrase "even if we assume that the comopany will report $0.30 EPS for the full year 2021..." points into a disbelief regarding earnings estimates.
This article does not take into account any margin improvement in their fastest growing division, e-commerce. EBIT going from negative to positive alone will significantly increase earnings power

Yup. Except they are looking at 8-12% EBIT. EBITDA would be squarely in double digit %. Rerating has to happen.
05 Apr. 2021
GME all over... backward looking hit piece right before earnings.
The Q320 and Q420 earnings transcripts indicate the exact opposite of most of this article. Strong revenue growth and "...even more enduring the business has moved to a natural adjacency in shipping. This is a new large growth area, which along with the ongoing transformation of our financial services business and a meaningful contribution from our global Services group leverages our core strengths." PBI is on a strong uptrend with 200 bar 'daily' support above 7.50. Maybe stick with real estate...

I’d be concerned. If this is what his clients can count on for advise, can’t imagine his real estate advisory is doing well. Maybe it is. Who knows. But a good part of it seems to be dumb luck.
my apologies in advance, but this is possibly the poorest analysis and article I've ever read on SA. Many others have posted about where the analysis is off....i wouldn't call this one overvalued considering the fractional .4x price to sales ratio and their growth being in the 10% range.
@Dotcom_Angel You make a good point on using P/S as a ratio, also their EV/EBITDA (foward) is also below the industry average. The author uses P/E and PEG, which is not wrong either. However, depending on what ratios are used, both arguments can be made; that PBI is either under or overvalued. I believe we should take ratios into consideration, but it is not the whole story. I am long PBI.
@Jay Are

The author is not wrong. It’s just that he chose to cherry pick. And neglected to mention the future, and look across valuations of PBI’s peers that gives the public an incomplete picture of the value story.
disdaniel profile picture
This article expresses a surprising narrow, short term, and largely backward looking view of PBI. Basing future growth and valuation on a totally messed up year like 2020, will lead to bad analysis. This is the first I've read from this author, hopefully s/he improves. Within a year I expect PBI will be over $20/sh. I hold 50k+ shares.

I doubt that there will be any improvement. I'd be very concerned if I were a client of Orion. I hold 42K shares and adding on a schedule.
Good bearish read. I think this is exactly the sentiment that most big players feel. But the play here is the company’s ability to sustain their growth post pandemic. If they show significant growth qtr by qtr while growing EBIT, then it is cheap now. I’ll take that bet. Because by the time the market has realized they can continue it. Price would already be baked in. 1 year from now weather you wait for a price of 6 or 8 dollars. Does it really matter when the price is $25.00?
True Orion profile picture
@soguilk It is this uncertainty regarding future earnings that makes us conservative on the current valuation.
@True Orion

Be honest. Who is “us”.
Analyze This profile picture
@True Orion If you want certainty of earnings..... I suggest you buy a utility stock..... ever wonder why there are hundreds of companies trading at multi billion market caps and don't even earn positive EBITDA ? Give that some though...and then get back to us.
@True Orion...interesting article. With a current dividend of 2.3% at today's current price and street target of $9.

I would disagree and say this company is fairly valued and not "overvalued". At either $4.45 or $6.50 it would put a dividend number from 3% to 4.5% with a $9 target. That would be "buy" or 'undervalued".

So with a positive turn in business going forward...why so negative? If it was always about the numbers...TSLA would not be a $700 stock.

You nailed it. The refusal to declare motives around this article is very concerning.
True Orion profile picture
@ptusr Thanks for your input. For the record, I also do believe that TSLA is overvalued as well.
@True Orion

Mmmm where’s the hit piece on TSLA? Probably would be a good thing for fixing your reputation.
Dear author, if you attended the recent Sidoti conference, you will realize that the EBITDA of 8-12% for the ecommerce business is a real near term target. The transformation is well underway. At EV/Rev multiples valuation under 1x, at current prices, I think it is easy to see why this is deeply undervalued. Furthermore, PBI is priced as if they are going out of business. This is not true, as indicated by you, they have turned the corner and growing double digits. Even you acknowledged that they are in good health.

In summary, they were in a death spiral, priced (still is) as if they are near bankruptcy. This is not true anymore and they have turned, in their most recent quarter, a profit on their Ecommerce business.
Corsair1398 profile picture
So what’s the point of writing this random article? I respectfully disagree with the analysis. The numbers don’t mean a thing in a vacuum. They are transitioning heavily to e-commerce, this sector is way over capacity and they have a ton of opportunity to expand. E-commerce IMO is not simply a COVID result that will fade - it’s the future, that is why the market is pricing at these levels. They have a ton of upside simply on parcel pricing increases and numbers.

Again - random company to write an article on if you have no interest or position unless you are short.
True Orion profile picture
@Corsair1398 I understand that if you are long in a company, listening to a different opinion might be hard. However, numbers don't lie here. Although with a 5 year investment horizon this will play out good, in today's price and data it is overvalued. Thanks for taking the time to comment.

Its hard to look at this as a serious commentary. Its closer to a hit piece. The understanding appears shallow, and valuation based on a really rough year that included a massive goodwill impairment write off in Q1 of 2020. Backward looking, and not forward looking.
@True Orion I personally love listening to the shorts. However, why would you not state in your article that you believe LONG-term this will play out? Entire article has a negative slant yet you are now saying you are actually bullish... very strange. @Justin Dopierala - what do you think about True Orion's post?
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