Donnelley Downgraded to Strong Sell

Zacks

On May 17, 2013, Zacks Investment Research downgraded R.R. Donnelley & Sons (RRD) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Donnelley reported first quarter 2013 non-GAAP earnings of 37 cents per share, which comfortably surpassed the Zacks Consensus Estimate by 4 cents. However, earnings per share declined 15.9% year over year, primarily due to margin contractions.

Revenues for the quarter were up a modest 0.5% year over year to $2.54 billion. Operating margin contracted 40 basis points (bps) on a year-over-year basis to 6.8% due to certain customer rebate adjustment, price pressure and unfavorable product mix.

Donnelley reiterated its fiscal 2013 guidance. For fiscal 2013, Donnelley expects revenues to be in the range of $10.1 billion to $10.3 billion, which remains flat compared to 2012.

Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) are expected to be in the range of 11.2% to 11.4% for fiscal 2013, which is slightly lower than 12.0% reported in 2012.

The Zacks Consensus Estimate for the second quarter of 2013 has declined 17.0% (8 cents) to 39 cents over the last 60 days.

The Zacks Consensus Estimate for 2013 decreased 9.5% (16 cents) to $1.53 per share over the last 60 days. The Zacks Consensus Estimate for 2014 dropped 6.6% (10 cents) to $1.52 per share over the same period.

Other Stocks to Consider

Not all printing and outsourcing services providers are performing as poorly as Donnelley. We recommend Barrett Business Services (BBSI), which has a Zacks Rank #1 (Strong Buy). Genpact Ltd (G) and Convergys Corp (CVG), both having a Zacks Rank #2 (Buy), are also looking good at present.

Read the Full Research Report on RRD

Read the Full Research Report on G

Read the Full Research Report on CVG

Read the Full Research Report on BBSI

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