Pitney Bowes Benefits From Restructuring: Can It Rebound?

Pitney Bowes Inc. (NYSE:PBI) has had a disastrous run on the bourse, having lost 13.3% over one year, in stark contrast to the industry’s rally of 15.5%. However, shares have started to turn around, and we believe that the time is ripe to focus on key driving factors which bode well for long-term growth of the company.

Over the past three months, shares of the company gained 18.0%, outperforming the Zacks categorized Office Automation and Equipment industry’s average gain of 14.9%. Earlier this month, the company released its first-quarter 2017 earnings, wherein the Zacks Rank #2 (Buy) company beat estimates, reversing its recent trend of five back-to-back earnings misses.

The recent uptrend in the shares, rebound in end markets and some potent catalysts make us believe it could be a good time to get in.

Robust Rebound of Software

Pitney Bowes has been undergoing a steady transformation process over the past four years, designed to create long-term flexibility for investment toward future growth. The company’s concerted efforts to transform its business are beginning to show results as is evident from growth across most business lines. For instance, the new channels that it has been developing over the last four years — tele and digital — boosted growth of its Mail business during the recently-reported quarter.

Also, the Software business, which has been long hurting from macro woes, has finally returned to growth during the first quarter. Closing several deals, including financial crimes, compliance and big data solutions proved conducive to the Software revenues growth. Also, positive contribution from an indirect channel, robust license revenue growth, high data and SaaS revenues supplemented growth of the Software business.

Growth Drivers

Speaking of catalysts, Pitney Bowes’ Global Ecommerce business continues to be one of the strongest profit churners. In less than five years, Global Ecommerce has grown from $20 million business to worth over $400 million. During the first quarter of 2017, Digital Commerce Solutions reported 9% year-over-year growth in sales to $166 million, on the back of strong Global Ecommerce business (up 17%).

In a bid to further fortify its ecommerce business, the company has plans to invest in shipping Application Program Interface to boost domestic shipping business, support retailers to generate consumer demand and take up investments to expand its cross-border offerings. This apart, Pitney Bowes continues to enhance and optimize its new enterprise business platform to boost profitability.

The company remains confident that enterprise business platform will continue to drive operational efficiency, help it to roll out new products and boost client experience. Other growth drivers include introduction of new products and digital capabilities, partner channel expansion, improvement in the direct channel and expansion of the Presort Services network.

Impressive VGM Score

Pitney Bowes also has a Zacks VGM score of ‘B’. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics, and a good VGM score indicates stronger chances of success. Our research shows that stocks with Style Scores of ‘A’ or ‘B,’ when combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.

Other Stocks to Consider

Some other stocks worth considering in the industry are listed below:

Applied Optoelectronics, Inc. (NASDAQ:AAOI) has an outstanding positive average earnings surprise of 118.3% for the trailing four quarters, beating estimates all through. It boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems Incorporated (NASDAQ:ADBE) holds the same Zacks Rank as Pitney Bowes and generated an average earnings surprise of 7.7% over the trailing four quarters, with beats each time.

Cohu, Inc. (NASDAQ:COHU) has a striking earnings surprise history with an average positive surprise of 121.2% over the trailing four quarters, beating estimates all through. It sports a Zacks Rank #1.

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