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Pitney Bowes Slumps on Weak Software & Mailing Business

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For more than a year now, premium technology company, Pitney Bowes Inc. (PBI - Free Report) , has had a bearish run. Shares of the company recorded an average negative return of 25.5% over the past year, much wider than the Zacks categorized Office Automation & Equipment industry’s negative return of 7.6%.

Pitney Bowes has an average negative surprise of 10.9%, missing estimates each time for the trailing four quarters. With a host of factors curbing the company’s growth, and recent analyst estimate revisions being decidedly negative, we doubt if it can stage a comeback anytime soon.

Over the past couple of months, the earnings estimates moved south, attributable to three downward estimate revisions compared to none upward. This has sent the Zacks Consensus Estimate for fiscal 2016 earnings down from $1.76 cents to $1.75 cents.

Factors Causing Slowdown

Dreary software business, despite restructuring initiatives, remains one of the major spoilsports for the company. Despite taking multiple measures pertaining to Software business transformation, Pitney Bowes has been unable to generate a tangible positive impact. Since the beginning of these initiatives, performance of the Software business failed to come at par with its long-term model.

The company believes that deteriorating market conditions in the technology industry, along with the lack of execution of strategic business decisions, have affected performance of the Software business. Also, the sluggish global economic environment is expected to hamper production mail and Software businesses in the near term, limiting the company’s growth momentum.

In addition, the company’s Small and Medium Business performance have also been performing poorly, thus weighing on Pitney Bowes’ top-line performance. Moreover, weakness in the North American Mailing business is yet to subside entirely. Soft equipment sales and accelerated decline in physical mail volumes have been hurting the mailing business. Waning mail volumes also have had an adverse effect on the company’s revenues and are expected to pose threat for the near term as well.

Further, Pitney Bowes has been experiencing a surge in its operating expenses on account of ERP implementation in the U.S. and higher marketing expenses in relation to aggressive advertising and marketing strategies. Incremental marketing expense related to the advertising campaign is anticipated to be highest in the first and fourth quarters of 2016, which, in turn can impact financials in the near term.

Going forward, the company believes that rising capital expenditure on the Enterprise Resource Planning (“ERP”) program will continue to exert pressure on margins in the near term, till their benefits materialize.  This apart, currency volatility is proving to be a drag on the e-commerce business, which happens to be the strongest profit churner. This Zacks Rank #4 (Sell) stock’s cross-border business remains vulnerable to currency volatility, moving ahead.

Stocks to Consider

Better-ranked stocks in the broader computer & technology sector include Broadcom Limited (AVGO - Free Report) , Applied Optoelectronics, Inc. (AAOI - Free Report) and Guidance Software, Inc. .

While Broadcom Limited and Applied Optoelectronics sport a Zacks Rank #1 (Strong Buy), Guidance Software carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Broadcom Limited has an average earnings surprise of 6.4%, beating estimates all through, over the trailing four quarters.

Applied Optoelectronics, Inc. has a whopping average earnings beat of 106.7%, beating estimates thrice over the trailing four quarters.

Guidance Software, an industry leader in digital investigative solutions, also has an impressive earnings history. The company has beaten estimates in all the four trailing quarters, with an average surprise of 18.6%.

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