Commercial printers are primarily engaged in providing customized printed products and graphic designs. The industry serves large corporates, small businesses and graphic professionals among others. Some of the products offered by commercial printers are business cards, banners, logo apparel, catalogues, calendars and packaging. Printing is done primarily on papers, glass, plastic and apparel products.
Also, some printing companies are engaged in providing technologies and services for document management to customers in the retail, technology, financial services, architectural, engineering, construction, food, entertainment and hospitality industries.
Here are the three major themes in the industry:
• The industry typically benefits from increasing consumer sentiment. Rise in personal income due to strengthening economy, availability of higher-wage jobs, lower taxes and many other factors have been gradually improving consumer spending. This, in turn, has boosted business opportunities for product manufacturers. And, in order to meet rising demand for their products and stay competitive, manufacturers are heavily using the products and services, such as advertising materials, of commercial printing companies.
• Availability of highly skilled workforce, use of technologically advanced equipment and easy access to raw materials are some of the key traits of large commercial printing companies. In addition to advertising, commercial printers are seeing growth opportunities in printing office products, directories, labels, catalogs, documents management services, etc.
• Growing preference of digital media in the advertising industry is a threat to the commercial printing industry. Also, companies are required to make heavy investments in equipment and talent to keep pace with changing technologies and to derive economies of scale. This can force small firms to go out of business or to collaborate with larger ones.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Commercial Printing Industry is a seven-stock group within the broader Zacks Industrial Products Sector. The industry currently carries a Zacks Industry Rank #54, which places it at the top 21% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Our proprietary Heat Map shows that the industry’s rank has remained in the top half of the list for the majority of the past eight weeks.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has been increased by 10.56%.
We will present a few stocks that have the potential to perform better than the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector but Underperforms S&P 500 on Shareholder Returns
The Zacks Commercial Printing Industry has performed better than its own sector over the past year. While the stocks in this industry have collectively declined 4%, the Zacks Industrial Products sector has decreased by 5.7%.
However, the industry has underperformed the S&P 500, which gained of 15.2% over this period.
One-Year Price Performance
Commercial Printing Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing commercial printing stocks. The industry’s forward 12-month EV/EBITDA ratio of 9.84 is currently below the median and high levels of 13.13 and 18.39, respectively, for the last five years. This clearly signifies that the stock has considerable upside potential.
Additionally, the industry is trading at lower levels compared with the S&P 500's forward 12-month EV/EBITDA ratio of 11.93. Also, the industry valuation is below the broader market's 5-year median and high ratio of 8.08 and 12.55, respectively.
Industry’s EV-to-EBITDA Ratio (Forward 12-Month) Versus S&P 500
Increasing use of commercial printing services on the back of growing domestic economy should help the stocks perform well. So, it’s a good idea to bet on a few stocks from this space that are well positioned to perform better than others.
Here we present three such stocks that have strong earnings outlook:
Cimpress N.V. (CMPR - Free Report) : The stock of this Venlo, the Netherlands-based company carries a Zacks Rank #2 (Buy). The company’s stock price has increased 13.5% over the past year.
(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)
In the past 60 days, the Zacks Consensus Estimate for earnings has been raised 5.2% for fiscal 2019 (ending June 2019).
Price and Consensus: CMPR
ARC Document Solutions, Inc. (ARC - Free Report) : The stock of this Walnut Creek, CA-based company has gained 2.7% year to date. It currently carries a Zacks Rank #2.
In the past 90 days, the Zacks Consensus Estimate for earnings has been revised 16.7% upward for 2018.
Price and Consensus: ARC
In addition to the above-mentioned stocks, investors may hold on to the following stock:
Quad/Graphics, Inc. (QUAD - Free Report) : The stock of this Sussex, WI-based company currently carries a Zacks Rank #3 (Hold). In the past 90 days, the Zacks Consensus Estimate for earnings has been revised up 6.8% for 2018.
Also, this estimate represents a year-over-year growth of 5%.
Price and Consensus: QUAD
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