Shares of Pitney Bowes (PBI) fell sharply on Monday’s close, trading on news that the company missed Wall Street’s fourth-quarter revenue expectations.
In just one day, PBI shares declined 7.15% from Friday’s closing price, ending Monday’s session at $22.26.
But don’t be so quick to dismiss this company.
As you’ll see, Pitney Bowes has actually prepared for this moment for the last 15 years.
Before I get into that, let’s review the company’s not-so-stellar earnings report.
A Temporary Glitch?
Some say that it gets worse before it gets better… Well, shareholders of PBI certainly hope that’s the case.
Why the sudden selloff?
Pitney Bowes reported Q4 2014 revenue of $983.9 million, a decline of 2.6% from the $1.01 billion reported in the same quarter a year ago. That’s 4.5% short of the $1.03-billion consensus number expected for the quarter.
The company reported net income of $62.5 million, or $0.31 per share. That represents a 30.5% decline year over year.
On an adjusted basis, the company reported earnings of $0.51 per diluted share for the quarter, which was in line with analysts’ estimates.
For the year, PBI reported total revenue of just over $3.8 billion, a 1% increase over full-year 2013 revenue.
Full-year adjusted earnings per share were $1.90, a 4.9% increase compared to 2013.
Pitney Bowes reported free cash flow of $571 million, while indicating that it re-purchased $50 million of stock and retired $100 million of debt.
For 2015, PBI expects to see earnings of between $1.85 per share and $2 per share, compared to analysts’ estimates of $1.99 per share for the year.
The company said it expects revenue for 2015 to come in between $3.8 billion and $3.9 billion, which would represent a 3% gain on the high end.
Add it all up, and shareholders are wondering if the stock is worth holding at current levels.
Well, I’m convinced that the company’s actions over the past 15 years should allow it to surge ahead in the coming months. Here’s why…
The Strategic Buying Spree
Over the past few years, we’ve seen a near-continuous decline in the movement of physical mail from the post office – down by 23.1% since 2004.
And since Pitney Bowes provides shipping solutions, the company’s financial performance has suffered as a result.
But to their credit, Pitney management was very proactive in recognizing the negative trends in physical mail, and its deleterious effect on future revenue.
More specifically, in an effort to diversify itself away from complete reliance on snail mail, Pitney Bowes aggressively acquired more than 80 technology companies over the past 15 years.
These acquisitions have allowed Pitney to expand into software and e-commerce business-to-business (B2B) markets, which will continue growing at double-digit rates for a decade or more.
Consider, eMarketer expects to see global B2B e-commerce grow from $1.5 trillion in 2014 to more than $2.3 trillion by 2017 – a 53% increase.
This could be huge for the company in the long term.
In the end, Pitney Bowes is well situated to gain significant market share in this burgeoning space, which will ultimately drive the company’s future revenue growth upward.
Expect Pitney Bowes’ earnings to grow 24% by 2016.
While you wait, you can even take advantage of Pitney Bowes’ attractive 3.3% dividend yield (at current valuations).