Pitney Bowes, Inc. - Finding No Love

Pitney Bowes provides a full range of mailing equipment, software, supplies and support services in addition to providing equipment and services that enable large enterprises to process inbound and outbound mail. The company also provides information management, location intelligence, customer engagement, shipping management and global e-commerce solutions to clients. Industry peers include Siemens AG, NEOPOST SA, and Xerox Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $13.45, with an initial trailing stop at $10.79. Upward price movement will encounter resistance at $11.29, $12.26, and $12.83, while downward price movement will find support at $10.41 and $9.82.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Pitney Bowes, Inc., they recorded a net provisional one-time non-cash benefit of $39 million, which is comprised of a provisional $130 million benefit from the remeasurement of net U.S. deferred tax liabilities arising from a lower U.S. tax rate, offset by a provisional $91 million charge related primarily to the U.S. tax on unremitted earnings of our foreign subsidiaries.

Their estimates of the impact of the Act are based on current calculations and interpretations, as well as assumptions and expectations relating to the Act, which are subject to adjustment based on further guidance and factual changes during the measurement period. As a result of the treatment of foreign earnings under the Act, they have reconsidered their permanent investment position and provisionally concluded they will no longer assert indefinite investment with respect to foreign unremitted earnings as of December 31, 2017.

Insider Transactions
For FY17, the company recorded 44 insider trades involving 215,919 shares of stock. Of the 44 insider trades, 25 were Buys involving 166,609 shares of stock, and 19 were Sells involving 49,310 shares of stock, creating an insider buy to sell ratio of 3.4 to 1.

Future Value
My future (5 year hold) target price for the stock is $16, which is an average annual return of 9%. A prior five year hold of the stock would have returned an average of 3% per year. Please be aware that past and future gains are based on actual and anticipated earnings. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. In the case of Pitney Bowes, Inc. (NYSE: PBI) - FYE 12/2017 the stock is UNDER VALUED, and is currently trading at levels below my most recent $13 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Pitney Bowes, Inc. in my portfolio.
Posted on 04/06/18