Wednesday, September 17, 2008

* Stock Analysis: Pitney Bowes Inc. (PBI)

Linked here is a PDF copy of my detailed analysis of Pitney Bowes Inc. (PBI). Below are some highlights from the above linked analysis:

Company Description: Pitney Bowes Inc. is the world's largest maker of mailing systems, also provides production and document management equipment and facilities management services.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
PBI is trading at a discount to only 1.) above. Since PBI's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, PBI is trading at a 73.2% premium. PBI had a Star deducted for trading at a premium in excess of 5%.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
PBI earned two Stars in this section for 3.) and 4.) above. PBI has paid a cash dividend to shareholders every year since 1934 and has increased its dividend payments for 26 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating. Last year's dividend payout was 81%, up from 51% in 2006. Since the increase was in excess of 15 points, a Star is deducted, leaving a net of one Star in this section.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA
PBI earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. The negative NPV MMA Diff. means that on a NPV basis for every $1,000 invested in PBI you would earn $33 less than a MMA earning a 20-year average rate of 4.61%. If PBI grows its dividend at 2.7% per year, it will never equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.

Other: PBI is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. PBI's revenue growth has been unimpressive and they will need to integrate recent acquisitions. Historically, PBI has maintaind a steady cash flow from recurring revenue streams, and it has used this cash flow to execute a consistent dividend policy and share buyback program.

Conclusion: PBI lost one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and lost one Star in the Dividend Income vs. MMA section for a net total of negative one Star. Since my scale bottoms out at zero, this quantitatively ranks PBI as a 0 Star-Avoid stock.

Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $28.11 before PBI's NPV MMA Diff. increases to the $3,000 NPV MMA Diff. that I like to see. At that price PBI would yield 4.98%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 6.3%. This dividend growth rate is substantially abovethe 2.1% average between 2001-and 2007. PBI has a long way to go before it earns a spot in my income portfolio.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I had no position in PBI (0.0% of my Income Portfolio) .

What are your thoughts on PBI?

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