Thursday, March 22, 2012

Pitney Bowes Inc. (PBI) Dividend Stock Analysis

Linked here is a detailed quantitative 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. The company also provides production and document management equipment and facilities management services.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these 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 1.) and 3.) above. Since PBI's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 19.0% discount to its calculated fair value of $22.41. PBI earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

PBI earned one Star in this section for 3.) above for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1934 and has increased its dividend payments for 30 consecutive years.

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) or Treasury bond? 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 a Star in this section for its NPV MMA Diff. of the $2,760. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as PBI has. The stock's current yield of 8.26% exceeds the 3.1% estimated 20-year average MMA rate.

Memberships and Peers: PBI is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The Avery Dennison Corporation (AVY) with a 3.6% yield, HNI Corp. (HNI) with a 3.4% yield and United Stationers Inc. (USTR) with a 1.7% yield.

Conclusion: PBI earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks PBI as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $35.05 before PBI's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 30 years of consecutive dividend increases. At that price the stock would yield 4.3%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is negative 6.7%. This dividend growth rate is well below the 1.4% used in this analysis, thus providing a significant margin of safety. PBI has a risk rating of 2.00 which classifies it as a Medium risk stock.

Historically PBI has enjoyed a significant competitive advantage as an approved vendor of the highly regulated U.S. Postal Service. With the decline in the U.S. mail services, the company must transform itself. This decline has manifested itself in PBI's lackluster rate of revenue growth. Another concern is the company's high level of debt relative to capital. Even though the stock is trading below my calculated fair value of $22.41, it is not a candidate for my Dividend Growth Portfolio. I will continue to evaluate it for inclusion in my High-Yield 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 held no position in PBI (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

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Tags: [PBI] [AVY] [HNI] [USTR]