Buy, Sell, or Hold: Pitney Bowes

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible the upside outweighs its risks. Let's take a look at Pitney Bowes (NYSE: PBI  ) today, and see why you might want to buy, sell, or hold it.

Founded in 1920 and based in Stamford, Conn., the company is best known for the postage meters bearing its name that have long rested in offices across the country. It does more than that, though, offering not only equipment, but software, services, supplies, and more, facilitating business communications and mailings. It even engages in telemarketing. The stock has not been too good to investors, though, shedding 21% over the past year and averaging annual losses over the past three, five, and 10 years.

Buy
Perhaps the main attraction for this stock is its dividend yield, which recently topped 10%! Even better, the company has been increasing its payout regularly, though admittedly not by huge amounts. Extremely big dividends can be a red flag, though, as they often reflect stock prices that have sunk, and might indicate a company's on shaky ground.

Another attraction is the company's diverse operations. It makes printers, for example, along with shredders, furniture, and more. And it offers a range of software, too, which typically commands higher profit margins than hardware does. (Its software helps businesses manage data, conduct analysis, and engage in email marketing, among other tasks.)

Pitney Bowes is expanding its scope even more. It has partnered with Facebook (NYSE: FB  ) , for example, in order to enhance communications with geocoding technology. (Of course, Facebook's own future isn't so certain, and privacy enthusiasts aren't thrilled about adding users' geographical data into the mix.) It signed deals with FedEx and UPS (NYSE: UPS  ) , too, to try and share some of the wealth generated by the growing distribution of items ordered online.

The company's valuation looks tempting, too, with its price-to-earnings ratio near 7, less than half its five-year average level, and its forward P/E (based on next year's expected earnings) at just 6. (Some low P/Es are deserved, though, such as when a company is not growing at a good clip.)

A glance at financial statements offers some promise: debt levels are not insignificant, but they've been falling. Cash levels, too, have risen in recent years.

Sell
A big worry for those considering Pitney Bowes is the future of mail. The U.S. Postal Service is already struggling, and many companies are shifting as much paper communication to digital formats as they can. Genworth Financial (NYSE: GNW  ) , for example, has saved money by reducing its paper mailings. Many software companies, too, are shifting to distributing their wares digitally instead of through the mail. Netflix, too, is decreasing its postage costs as its video-streaming business grows. (Fortunately, the company has plenty of operations outside the postal realm.)

Some numbers in Pitney Bowes' financial statements offer little encouragement, too. Its annual revenue has been steadily declining in recent years -- though, to be fair, earnings have actually been rising. That can reflect cost-cutting or margin expansion, but big earnings growth isn't sustainable over the long run without revenue growth. Free cash flow has fallen in recent years, but there's still a tidy sum of more than $600 million over the past year. Operating cash flow, though, has been generally trending downward.

You might also not have sufficient faith in the company's management. There are indeed plenty of irons in the fire to be hopeful about, but Pitney Bowes lost most of the market in the online postage business, which almost seems like its birthright, to Stamps.com.

Hold (off)
Given the reasons to buy or sell Pitney Bowes, it's not unreasonable to decide to just hold off. You might want to wait, for example, for the company to find some new paths to growth and to start posting significant top-line growth. You might want to see its debt level fall more, as well.

If the dividend attracted you most to Pitney Bowes, you might simply look at alternative dividend payers, such as utility company National Grid (NYSE: NGG  ) , with its dividend recently topping 7% and offering diversification across several countries. It's been beefing up its clean-energy operations, too.

The verdict
I'm not buying shares of Pitney Bowes -- at least for now. It may perform spectacularly in the coming years, but there are plenty of other compelling stocks out there. Everyone's investment calculations are different, so, do your own digging and see what you think.

If you're more intrigued by Facebook's explosive potential than by Pitney Bowes' future, check out our new premium research service on Facebook. It offers a detailed report on the company's opportunities and major risks in the years ahead, as well as included quarterly updates. Click here to read more.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Netflix and National Grid, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Facebook and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix, FedEx, Facebook, United Parcel Service, and National Grid. Motley Fool newsletter services have also recommended creating a bear put ladder position in Netflix. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 27, 2012, at 9:03 PM, Rollomc wrote:

    I find it unimaginable that the USA would let the post office go away. Volume may decrease, but the USPS will no more go away then Fanny May or Freddie Mac. Pitney Bowes will continue its relationship with this entity for the forseeable future. They have managed to increase EPS with declining revenue showing a tight management strategy aimed at survival. In the mean time contract expansion with UPS and Fedx bodes well for potential revenue expansion. At a dividend per share of $1.48 with a EPS of $2.96 in 2011 the dividend represents just over 50% of net income.

    Pitney Bowes is an old line company with a proud tradition of earnings and shareholder interest.

    Can they continue the dividend growth and revenue increase needed to maintain it? No one knows for sure, but they seem committed to such a course. I for one will stay with them for now. A turn around in revenue toward growth will support my position increasing.

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