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Shares of Lexmark International Inc. (LXK - Analyst Report) hit a new 52-week high of $47.97 on Apr 3, eventually closing at $47.59. The closing price also represents an extraordinary one-year return of 79.18% and a year-to-date return of 36.28%.

The transition of business model from low margin printer sales to a high margin process management software services, Managed Print Services (MPS) and Perceptive bode well for Lexmark. Moreover, the company’s laser printing hardware and multifunction peripheral (MFP) printer business has yielded positive results.

Moreover, Lexmark’s dominance in the MPS market is supported by the large number of deal wins. Additionally, the company has been declared a leader in this market by research firms IDC and Gartner Inc. (IT - Snapshot Report).

It is worth noting that, Lexmark’s previous-quarter results were impressive with strong revenue growth across all the business segments and improved Imaging Solutions and Services (ISS) performance. However, the first-quarter guidance was disappointing, reflecting the Inkjet exit and macro uncertainty.

However, we see the Inkjet exit as a positive. Lexmark will now be able to focus on MPS and the software business with better growth prospects.

Though restructuring and share buyback plans could boost share prices in the near term, the overall outlook for the printing industry remains tepid. Demand for printers is slowing down due to increasing usage of digital content through mobile devices.

Moreover, overall macro uncertainty could have an effect on product demand. Though constant pricing pressure from competitors such as Canon Inc., Xerox Corp. (XRX - Analyst Report) and Hewlett-Packard Co. (HPQ - Analyst Report) and a high debt burden are a concern, we expect Lexmark to turn the tables with an increased focus on software and services.

Currently, Lexmark has a Zacks Rank #3 (Hold).

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