Achiever Alert: Pitney Bowes (PBI)

Yesterday (July 30th) in after-hour trading, Pitney Bowes (PBI) fell by $1.89 or 8.04% to close at $21.61 due to downward revisions of future earnings. This may be the situation where the stock becomes severely underpriced by the markets.After a quick read, I found out that PBI normally trades around 7.5 times cash flow according to Valueline Investment Survey. If we use full year 2008 cash flow of $4.66 then we'd arrive at a mean price of $34.95. This suggests that PBI is trading 38% (a nice Fibonacci and Dow Theory number) below the mean price. As a Dividend Achiver, PBI has increased the dividend every year for 25 years in a row at a 10-year CAGR of 5.5%. According to Investment Quality Trends, PBI is undervalued at a price of $29 with a yield of 5%.

PBI has many issues that cannot be ignored. The debt situation is not very favorable to the company, especially since PBI provides the financing for their consumers. PBI could have overextended credit on the upswing of the previous cycle and is now getting hit by the double whammy of companies having difficulty paying back their debt as well as a stalled economy that has reduced the demand for their postal equipment. PBI also has a high dividend payout ratio of 73% based on trailing twelve months earnings.

My expectation is that PBI will fall further when the market opens. As long as the Dow Theory bull market indication isn't reversed and depending on the extent of the decline, I would consider buying PBI. Of course, I'm hoping for a situation where the price goes all the way down to the $14 or $15 level established in 1992. I strongly recommend that you watch this stock and do your research. Touc.

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2 responses to “Achiever Alert: Pitney Bowes (PBI)

  1. Just wanted to thank you for your research. I'm an income investor (my stock portfolio yields around 4%) and I've been reading your blog for almost a year and found the picks to be very helpful. PBI hasn't been on my radar but thanks for bringing it to my attention.

  2. Dividend Inc. Team

    Thank you for reading my blog. I hope that the information that I convey is useful.