Novice Investing - Running Out of Ink At Lexmark

Date: Friday 12th 2010f March 2010 10:39:15 AM

Running Out of Ink At Lexmark - 06/12/2009

By: Hari Wibowo

		Lexmark International Inc. One Lexmark Centre Drive 740 West New Circle Road Lexington, KY 40550 United States

We purchased Lexmark International Inc. (LXK) in our sample portfolio, which is our worst performer thus far. At $ 44 per share, Lexmark had a fair value of $ 62.10 per share, our EPS analysis said. Thus, the purchase price at $ 44 per share. Fast forward today, share price has languished at $ the teens, a 70% down performance. At this point, analysts expected a profit of $ 2.56 per share for fiscal year ending on December 2009. While many companies are affected by the global financial crisis, Lexmark shares had been hurt hard despite the fact that it is not expected to report a loss.

A glance at Yahoo! Finance revealed that Lexmark's competitors are bigger integrated electronic players such as Hewlett Packard and Canon. Lexmark is the only pure player in the printing industry which makes it tough to muscle it up with its smaller resource base. Nevertheless, Lexmark still spotted a decent balance sheet with $ 320 Million ($ 4.09 per share) in positive net cash.

Still, a decent balance sheet does not make it an attractive investment. How is demand for printers going forward? In general, printers demand will grow with the demand of Personal Computer, Notebook, Servers and now Netbook. In the US, demand for Personal Computer and Notebook is expected to decline while Netbook demand will grow slightly. That does not paint a good overall demand picture for Lexmark. Meanwhile, heavyweight competitors such as Hewlett Packard has their own arrays of PC and notebook offered to customers alongside its printer. In the medium tem, Lexmark will be having difficulty increasing its profit from current depressed level.

Will there be a rescue for Lexmark? It is possible. Dell Inc. (DELL) one of the larger PC makers has been pondering on acquisition when it was reported that it was building its cash cushion. Further, it has hired David Johnson, which was working as the director of merger and acquisitions at IBM. That doesn't mean that Dell would acquire Lexmark. There are other consolidations in the server storage sector at the moment. However, if properly integrated, Lexmark will prove to be a strategic fit for Dell. With its $ 10 + Billion of war chest, Dell can have several bullets it can throw.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Lexmark International Inc. (LXK) or any other securities.

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