We came across a bullish thesis on Pitney Bowes Inc. (PBI) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on PBI. PBI Technologies, Inc.’s share was trading at $7.11 as of Sept 27th. PBI’s trailing and forward P/E were 12.15 and 7.26 respectively according to Yahoo Finance.
A bustling distribution center, a sign of a thriving logistics business.
Pitney Bowes (PBI) is a 104-year-old logistics company that specializes in mail and parcel shipping. Its has three key subdivisions: SendTech, providing shipping and mailing technology and services; Presort, which helps clients integrate with the USPS for discounted rates; and Global E-commerce (GEC). PBI services 90% of the S&P 500 which tend to be sticky customers as for large institutions logistics partners are crucial and they don’t change them easily. While there has been a decline in traditional mail, the rise in parcel shipping offsets these losses, preserving its core strengths.
Over the years the company has been struggling under its management which can be seen from its financial results where net income has been on a decline from its peak in 2012. but an activist fund Hestia has taken control by replacing the management team in May 2023 in hopes that the turnaround would work out due to the strong client relationships the company has. PBI transferred the GEC subsidiary into bankruptcy to halt further financial losses to improve its business, which lost $136 million in 2023, thus allowing it to focus on profitable segments like SendTech and Presort. This move alone sets the company on a path toward sustainable profitability.
Apart from that PBI has been improving margins and cash flow by focusing on reducing costs through headcount reduction resulting in $70 million in annual savings and other such initiatives targeting up to $160 million in total savings. These cost-cutting initiatives are expected to improve profitability without impacting revenues. In addition, PBI is focusing on cash management. They have already brought back $100 million from their foreign subsidiaries, which don’t need as much working capital. Management plans to bring back another $25 million and expects to free up an additional $115 million through efficiencies in their bank subsidiary. This total of $240 million will be used to close down the GEC division.
The final aspect of the turnaround plan involves improving the company’s credit rating and reducing interest expenses by lowering its Debt/EBITDA ratio helping it refinance its debt. It is expected that the management may pursue strategic M&A and share buybacks rather than prioritize debt reduction, which could still drive shareholder value in the near term.
Hestia aims to boost PBI’s stock price to $15, almost twice its current value. If they achieve all their cost-saving goals, their 2024 EBITDA could be $480 million. This would result in about $1.50 earnings per share, assuming they keep their annual interest expense at $150 million. With a price-to-earnings ratio of 10x, which is typical for the industry, a $15 per share price seems realistic.
PBI’s turnaround looks promising due to its low valuation, with an enterprise value to EBITDA multiple of about 9x. By getting rid of its unprofitable GEC division, boosting efficiency, and managing cash better, the company is set for long-term growth. The stock price could double in the next two years, with even more potential if the turnaround speeds up.
Pitney Bowes Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held PBI at the end of the second quarter which was 16 in the previous quarter. While we acknowledge the risk and potential of PBI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PBI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.