Lexmark International (LXK) Slides on Concerns Regarding its Inkjet Business

Shares of printer manufacturer Lexmark International (LXK: Charts, News) slid over 6% yesterday, after Deutsche Bank downgraded the stock from hold to sell, setting an $18 price target on the stock. Deutsche Bank analysts cited increased competition from laser printer competitors and a weakening market for inkjet printers as the primary reasons for the downgrade.

Citigroup analysts agreed with Deutsche Bank's bearish view, also setting a sell rating on the stock with an $18 price target. Zacks analysts were slightly more optimistic, rating the stock as "neutral" with a $22 price target. Daily Chart
15% of Lexmark's revenue is generated by sales of inkjet hardware and supplies, which account for approximately $2.50 per share in earnings in fiscal 2012. The market for inkjet products is expected to decrease year-on-year at an alarming 35% to 40% until it flatlines, due to the consumer and commercial shift preference for cheaper laser printers, which produce superior quality documents. Deutsche Bank analysts noted, "This earnings exposure is substantial and it remains unclear how LXK will sustain EPS over the medium term. In the meantime, we expect competition in laser to heat up." Lexmark closed its inkjet printer division in August, laying off 1,700 employees. With the lack of new inkjet printer hardware, the company will be hard pressed to offset its losses with new laser printing solutions. Laser printers still comprise the bulk of Lexmark's revenue, but an increasingly saturated marketplace has investors worried. CEO Paul Rooke assured investors that the company's retreat from inkjet printing does not symbolize a full retreat from the printing business. "While we are not moving away from the printing business," stated Rooke, "we still have our core laser printing business. We are adding a number of software assets to our company to be able to help customers manage between this paper world that they still are swimming in, but also help them bridge to this digital world that they want to be in." On the consumer end, smartphones and tablets synced over cloud-based applications have decreased the need for traditional printing solutions. Meanwhile, offices are cutting down on paper and print cartridges - major expenses - and opting for "paperless workplaces" in which employees fully digitize their work. Lexmark's imaging and printing products are available worldwide in 170 countries. The Lexington, Kentucky-based company last reported earnings on October 23, posting earnings of 94 cents per share, easily topping analyst expectations of 78 cents per share. However, revenue declined 11% from the prior year quarter. Analysts forecast earnings of $3.77 for fiscal 2012. Lexmark trades at 5.98 times forward earnings. It has bounced between a 52-week high of $38.34 and a low of $16.10. The stock has declined 27% over the past twelve months, sliding further that its industry peers Canon CAJ and Xerox XRX, which have declined 14.5% and 10.6%, respectively. The stock pays a quarterly dividend of 30 cents per share - a 5.13% yield at current prices. Other News About LXK Lexmark International Rating Lowered to Sell at Deutsche Bank Lexmark slides on a bleak downgrade. Lexmark Poised For Better Performance In 2013 Lexmark's CEO promises a brighter 2013. Other Stocks in the News Sprint Buys Rest of Struggling Rival Clearwire Sprint takes over the rest of Clearwire, but will it make a difference? Best Buy Rises After Newspaper Says Schulze to Make Bid Best Buy's takeover drama continues. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Dec 14, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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