Insider buying was on holiday during the New Year's break as iStock identified records for only 31 companies. However, that doesn't mean we don't have anything to write about this week.
Lexmark International Inc. (NYSE:LXK) is our insider purchase choice today; albeit, it's the winner in a pool of slim-pickings where fives look like tens. In case you don't have one or know, Lexmark is a developer, manufacturer and supplier of printing, imaging, device management, managed print services, document workflow, and also provides business process and content management solutions.
This author has probably spent thousands of dollars on Lexmark ink! Ugh.
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Before we get deeper into our look at LXK, if you believe insiders possess knowledge the average investor never will – they do – and would be interested in a portfolio comprised of stocks with insider buying, then you might want to check out iStock's new Insiders' Circle.
The Daily i On the Market launched the Insiders' Circle launched to start 2014 with five names that meet our strictest criteria; so far so good as the portfolio is above water despite the year's slow start. If you are interested in knowing more, click here to start your 30-day risk-free trial.
Back to Lexmark; Director, Stephen Hardis bought 675 shares at $35.10 for a total investment of $23,692. Although the dollar amount is small relative to some of our other highlighted companies, Hardis previously made a similar purchase, and it was profitable.
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The Director added 712 LXK shares in October 2013 at $32.25, which is an 11.47% gain in a little more than 12 weeks. Who wouldn't be happy with that?
Can Hardis go two-for-two based on Wall Street's 2014 outlook for sales and earnings?
The consensus EPS estimate for 2014 is $3.67 per share, which is a slight drop-off from 2013's projected $3.88. At the same time, sales are forecasted to dip by 5%. It's been our experience that slowing earnings and sales normally translates into contracting valuations.
In the last five years, LXK's average price-to-earnings (P/E) ratio was 11.87 and an average price-to-sales (P/S) ratio of 0.56. At the moment, both are trending above the half-decade norms at 14.50 and 0.64, respectively.
Let's take a look at P/E first. Earnings grew at 4.87% while the P/E averaged 11.87 since 2009. That means Lexmark tends to trade at a premium to its bottom-line growth rates. As we already mentioned, profits are expected to fall in the year ahead while the three-to-five year forecast calls for EPS to decline by an average of 2.25% a year.
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It's hard to imagine the printer company's P/E growing while EPS are shrinking. Using the average P/E and 2014's consensus estimate, LXK would price out at $43.56, potential upside of 20.6% as we type.
That's livable and would outperform the market in 2014, in our opinion.
However, we get a different result when we plug in sales. The folks and their excel spreadsheet models come to a consensus revenue estimate of 3.42 billion for 2014. At 0.56 times sales (the five-year average), we get a far less attractive target of $30.84.
Splitting the difference between our P/E and P/S price-tags, a compromise of $37.25 – limited upside potential of 3.11%.
Overall: As things stand today, it could be more difficult for Stephen Hardis to make it back-to-back winning Lexmark International Inc. (NYSE:LXK) trades. However, if a catalyst emerges, the stock could fare well as 24.2% of LXK's float(shares available for trading) is sold short.
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