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Why Pitney Bowes Stock Just Exploded 18% Higher

By Rich Smith - Dec 29, 2020 at 1:19PM

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Management is raising prices and keeping them there "until further notice."

What happened

It's a post-Christmas miracle for Pitney Bowes ( PBI -3.08% ) shareholders. In a press release this morning, the postal services facilitator announced that it will be reinstating higher prices for its standard and cross-border delivery services, initially introduced during the peak 2020 shipping season, effective Jan. 25, 2021, and keeping those prices "in effect until further notice."

Shareholders responded by bidding up Pitney Bowes' stock price by an incredible 18% through 1 p.m. EST.

Cartoon professor with a pointer explains why a stock arrow is rising

Image source: Getty Images.

So what

"2020 was a record year for delivery volumes," explained the company in its statement, "and we anticipate the pace of those volumes to continue well into 2021 and beyond." And so the company is responding to these "unprecedented parcel volumes and COVID-19-related operating expenses continuing into the new year," by charging higher prices for its services.  

Now what

Now what does this mean for shareholders?

Consider that through the first three quarters of this year, Pitney Bowes' cost of goods sold has surged 20% in comparison to this point in the year last year -- those are the higher costs the company is talking about. Granted, operating costs at the company are down 5% year over year. Still, the upshot is that, despite attempts at cost-cutting, operating profits at Pitney Bowes have fallen 44% year over year, and Pitney Bowes is stuck with a year-to-date net loss on the bottom line.

Today's announcement is a good first step to reversing this trend. By charging more for its services, the company will improve its chances of earning (or even exceeding) the $0.36-per-share profit that analysts project for it in 2021. At a recent valuation of less than 18 times those projected 2021 profits, Pitney Bowes just became a more attractive candidate for stock buyers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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