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What Does Hp’s Outlook Mean For Lexmark, Canon & Dell ?
Hewlett-Packard Company gives a dour outlook with troubled printer stocks Lexmark International , Canon and Dell being among the big losers.
On Wednesday, Hewlett-Packard Company (NYSE: HPQ) warned that revenue is set to fall in every division except software and there will be a steep drop in earnings next year, meaning it might be worth taking a closer look at other stocks like Lexmark International (NYSE: LXK), which is now in small cap stock territory, along with Canon (NYSE: CAJ) and Dell (NASDAQ: DELL) that are also involved in the printer or office equipment industry and related sectors. Part of Hewlett-Packard Company’s (HPQ) problem is internal as its had three CEOs in as many years but the company’s business is also expected to be hit by a slow down in global corporate spending and personal computer demand. Hence, Hewlett-Packard Company (HPQ) is only promising a visible recovery beginning in fiscal 2014. That means investors might want to stay away from Hewlett-Packard Company (HPQ) until there are more clear signs the company can and will recover but its also worth noting that the one still-bright spot in the company’s portfolio is printing. In fact and while printing revenue fell 2.7% last quarter, operating profit rose 8% and the division accounted for $949 million of HPQ’s $3.1 billion in operating income. Nevertheless, printing is a big target for corporate cost-cutting. With that in mind, what’s happening with other printing stocks like Lexmark International (LXK), Canon (CAJ) and Dell (DELL) that were also taking sizable hits after Hewlett-Packard Company (HPQ) gave its outlook? Here is a closer look:
Lexmark International (NYSE: LXK) Is Also Trying to Turn Things Around (And Prepare to Sell Itself?)
Lexmark International is involved in developing, manufacturing and supplying printing, imaging, document workflow and content management solutions for the office whose products are sold in more than 170 countries. Simply stated, Lexmark International has long been a pure play printer stock. On Wednesday, Lexmark International fell 3.07% to $21.13 (LXK has a 52 week trading range of $16.10 to $38.34 a share) for a market cap of $1.49 billion (which sort of makes LXK a small cap stock) plus the stock is down 36.1% since the start of the year and down 49.1% over the past five years. However, Lexmark International does have a forward dividend of $1.20 for a dividend yield of 5.5% but it does not have a lengthy dividend payment track record. And like Hewlett-Packard Company, Lexmark International is taking a hit from the weak global economy impacting the printing business. Hence, Lexmark International is getting rid of its inkjet business (as that business has not made any money for the past few quarters) in order to focus on high-margin imaging and and software services (it will continue to provide inkjet supplies and software services plus laser printers and related services). However, there has also bee speculation that the restructuring is intended to prepare Lexmark International to be sold.
Canon (NYSE: CAJ) Has Currency and Other Issues to Deal With
Canon is a Japan-based manufacturing company with three business segments: 1) The Office segment (including color network and personal multifunction devices, copy machines, laser printers, large-sized ink-jet printers, digital production printers etc.), 2) The Consumer segment (including cameras, single-function ink-jet printers, scanners etc.) and 3) The Industrial Equipment and Others segment. On Wednesday, Canon fell 4.34% to $31.77 (CAJ has a 52 week trading range of $31.21 to $48.48 a share) for a market cap of $37.21 billion plus the stock is down 27.9% since the start of the year and down 41.5% over the past five years. Since its based in Japan, Canon has other problems – namely that 80% of its revenue come from overseas and the company has been hit by a strong yen along with a weak economy plus last year’s floods in Thailand also closed a printer plant and hit supply lines. That caused Canon to lower its forecast at the beginning of the year. Canon was also hit by the earthquake and tsunami in Japan before that and right now, its being impacted by the dispute between Japan and China of some uninhabited islands off their coasts. In fact, Canon was forced to suspend the operations at three of its four main factories in China earlier in September. Hence, Canon has plenty of other issues to deal with that have nothing to do with the global printer industry.
Dell (NASDAQ: DELL) is Getting Hit More By Smartphones and Tablets
Dell is a global information technology company that offers a range of solutions and services, including printers. On Wednesday, Dell fell 4.75% to $9.43 (DELL has a 52 week trading range of $9.38 to $18.36 a share) for a market cap of $16.36 billion plus the stock is down 35.5% since the start of the year and down 65.8% over the past five years. However, Dell does have a forward dividend of $0.32 for a dividend yield of 3.2%. Investors should be aware that Dell has recently announced the acquisition of IT management software maker Quest Software for $2.4 billion in order to expand the company’s offerings beyond personal computers as their popularity falls with the rise of smartphones and tablets. In fact, Dell stated back in August that its slump has worsened due to the popularity of smartphones and tablets cutting into sales of desktop and laptop computers. Dell also lowered its earnings target by 20% for its fiscal year that will end in January – despite having adjusted earnings for the last reported quarter topping Wall Street projections.
The Bottom Line. If there is one silver lining for printing stocks like Hewlett-Packard Company (HPQ), Lexmark International (LXK), Canon (CAJ) and Dell (DELL), it’s the fact that printing is an industry that’s not going to go away completely any time soon (PCs might be a different story) but that does not mean it won’t get smaller – along with the share prices of printer stocks.
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