Technology
A Very Unusual Pre-Earnings Upgrade for Lexmark
Published:
Last Updated:
Lexmark International Inc. (NYSE: LXK) saw its shares rise handily on Thursday, mostly on news of an analyst upgrade. Credit Suisse’s Kulbinder Garcha raised his rating to Neutral from Underperform.
Yes, you read that right, it was not a Buy or Outperform rating. And here we have seen a 7% gain to $30.74 shortly before the close. The rating itself is far from optimistic, and it was interesting to see that Garcha merely maintained his official price target of $31.00 in the call.
Because Lexmark is in the business of making and selling printers and ink cartridges, investors don’t want to pay up for this stock. Garcha’s $31 price target implies a price-to-earnings (P/E) ratio of only nine times the firm’s fiscal year 2016 estimate of $3.49 earnings per share (EPS).
It seems odd to see an analyst upgrade of this sort ahead of earnings next week. This stock is wildly unpopular. Again, who wants to own a printer company? Garcha said that management is guiding reported revenues of -4% to -6% versus a year earlier, or 0% to -2% in constant currency terms, and guiding an EPS range of $1.05 to $1.15. Garcha said:
Given the stock has underperformed the S&P500 by over 70% since March 2011 and we have a price target of $31, we upgrade the stock to a Neutral from Underperform, and await the outcome of strategic review… The company is considering a split, among other options, in its strategic review. We note the relative size of the printing business versus the software segment, with Printing contributing approximately 80% of revenues and over three times as much to operating income as the Software segment.
24/7 Wall St.Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
