Pitney Bowes Is on a Rapidly Shrinking Island
Much as it might pain me personally to say this, I have grave doubts that Pitney Bowes (NYSE:PBI) will be around in 2020.
The field of postage meters and mailing equipment is a business that’s deteriorating rapidly. Physical mail volumes have been on the decline for at least the past decade, and at some point — and I suspect it’s within five years or so — we’ll be looking at getting virtually all bills and catalogs online.
Pitney Bowes holds an 80% market share in the mail-meter business, and its highest margins come from this unit … but it doesn’t matter if most revenue and margin comes out of a dying market, there simply isn’t anyplace else to take up the slack.
Of more critical concern, PBI’s margins on every level are headed in the same direction — down. According to data provided by FinViz, earnings per share over the past seven years is down more than 7%. And while EPS over the next five years is expected to drop only about 1%, there is little reason to believe the trend won’t be worse and any slippage is magnified.
PBI continues to pay a dividend of $1.52 per share a year, which represents an eye-popping 13% yield — and that’s the problem. That payout accounted for nearly 50% of net income. That’s simply not sustainable for the longer term, particularly considering the company is weighed down with an 800% debt-to-equity ratio and that pesky dwindling-revenue-and-profits scenario. Cut the dividend and you will get some savings, but you’ll also see an even lower share price as investors head for the exits.
And as Barron’s reports, Standard & Poor’s just dropped PBI from its vaunted “Dividend Aristocrats” list for falling below the market cap threshold.
The bottom is falling out of this one. I just can’t see the business case for PBI’s viability beyond 2020.
At the time of publication, Bastow had no positions in the securities mentioned … having sold his PBI stake for a loss in December 2012.