Shares of Lexmark International Inc. (LXK - Analyst Report) reached a new 52-week high of $32.13 on Jun 7, 2013. Lexmark shares gained momentum on a host of catalysts such as dividend payout, sale of the loss-making ink-jet business, shift of focus from a hardware-centric business model to a software solutions-driven model, strong footing in the Managed Printing Service (MPS) space and customer wins.
The closing price of the printing solutions provider on Jun 7, 2013 was $32.10, representing a robust 1-year return of about 29.1% and year-to-date return of about 32.9%. Average volume of shares traded over the last three months stands at approximately 1,130K. Moreover, this Zacks Rank #3 (Hold) company has a market cap of $2.02 billion.
The printing industry is going through tough times with the ongoing macro softness. The sluggish economy in the U.S. and the Euro zone crisis has prompted many businesses to postpone big purchases until outlooks gain stability. Consumers are reluctant to buy printers and so are enterprises, which have to reduce IT spending. Moreover, demand for printers is slowing down due to increasing usage of digital content through mobile devices.
Despite the grave situation, Lexmark shares have managed to set new 52-week highs. As the hardware business is not likely to witness a turnaround, Lexmark is doing a wonderful job by focusing more on the software side. During the first quarter of 2013, revenues from the Software and Other segment shot up 34.0% year over year, while Hardware and Supplies segments witnessed revenue declines.
To gain strength in its software portfolio, Lexmark is continually acquiring firms such as Twistage, AccessVia, Acuo Technologies, BDGB Enterprise, ISYS Search Software, Nolij Corp. and Pallas Athena. Moreover, the company sold its loss-making ink-jet business (except ink-jet supplies business) to Japan-based consumer electronics provider, Funai Electric Co. to concentrate on software-based printing solutions.
Lexmark is also advancing in the MPS arena. A broad range of MPS offerings, wide customer base and continuous deal wins have led the company to achieve a leading position. Recently, a European analyst firm Quocirca recognized Lexmark as the leading MPS provider.
Lastly, we believe that Lexmark’s decision to return 50.0% of free cash flow to shareholders through share buybacks and dividends through 2013 is enough to raise investor interest. Reportedly, Lexmark is set to pay a dividend of 30 cents a share on Jun 14, to shareholders of record as of May 31.
Lexmark’s first-quarter results were decent with both the top and bottom lines surpassing the Zacks Consensus Estimate. However, quarter results came below the year-ago period. Guidance for the second quarter was deterring, reflecting inkjet exit and macro uncertainty.
But we remain confident on its cost reduction measures, acquisition synergies and growing software footprint.
Other Stocks to Consider
Other stocks in the technology industry that are currently performing well and have a solid visibility include SanDisk Corp. (SNDK - Analyst Report), Pegasystems Inc. (PEGA - Snapshot Report) and Advent Software Inc. , all having a Zacks Rank #1 (Strong Buy).