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Commercial Printing Industry's Near-Term Outlook Bright

Payal Jalan

The Zacks Commercial Printing industry comprises companies that primarily engage in providing customized printed products and graphic designs. The commercial printers serve large corporates, small businesses and graphic professionals among others. Some of the products offered by commercial printers are business cards, banners, logo apparel, catalogues, calendars and packaging. Printing is done primarily on paper, glass, plastic and apparel products.

Also, some printing companies are engaged in providing technologies and services for document management to customers in the retail, technology, financial services, architectural, engineering, construction, food, entertainment and hospitality industries.

Here are the industry’s three major themes:

  • Higher personal income, availability of higher-wage jobs, lower taxes and many other factors help in boosting consumer spending, and in turn, demand for products. To stay competitive and leverage benefits from high demand, manufacturers tend to spend more on advertising their products. Also, the availability of a highly skilled workforce, use of technologically advanced equipment and easy access to raw materials are some of the key traits of large commercial printing companies.
     
  • Besides advertising, demand for commercial printers has increased in office products, directories, labels, catalogues, documents management services, to name a few. Such diversification in revenue sources is a boon and helps in mitigating concentration risks. However, ARC Documents Solutions, Inc. (ARC) — a prominent player in the industry — relies heavily on architectural, engineering, construction and building owner/operator industry for sourcing the majority of its revenues (roughly 79% revenues were sourced from this industry in 2018).
     
  • Over time, increased popularity and digitization in the advertising industry limited the prospects of the commercial printing industry. This apart, companies (both big and small) as well as equipment manufacturers that provide similar services are a threat. Further, heavy investments — in equipment and talent to keep pace with changing technologies and to derive economies of scale — can force small firms to go out of business or to collaborate with larger ones.


Zacks Industry Rank Indicates Bright Prospects

The Commercial Printing industry is a 5-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #110, which places it in the top 43% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of bright earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have moved up roughly 2% since the end of June 2019.

Before we discuss a few stocks in the industry, we take a look at the industry’s shareholder returns and current valuation.

Industry Underperforms S&P 500 & Sector

The Zacks Commercial Printing Industry has underperformed its own sector and the S&P 500 over the past year. The stocks in this industry have collectively declined 34.5% compared with the Zacks Industrial Products sector’s decline of 2.8%. The S&P 500 has increased 5.8% in the said time frame.

                                              One-Year Price Performance





Commercial Printing Industry’s Valuation

EV/EBITDA ratio is commonly used for valuing commercial printing stocks.

The industry’s forward 12-month EV/EBITDA ratio is 7.77. This clearly shows that the industry is trading below the S&P 500’s forward 12-month EV/EBITDA ratio of 12.10 and the sector’s 14.01.

Over the past five years, the industry has traded at the highest level of 18.55x forward 12-month EV/EBITDA and lowest level of 5.76x. The median level, over the same period, was 12.19x.

             Commercial Printing Industry’s Valuation Versus Sector



            Commercial Printing Industry’s Valuation Versus S&P 500


Bottom Line

Increasing use of commercial printing services in diversified applications as well as favorable tax policy changes and better personal income should help the stocks. However, headwinds from leveraged balance sheets, stiff competition and preference for alternative advertising media among others remain.

Of the five stocks in the industry, one currently sports a Zacks Rank #1 (Strong Buy) and three carry a Zacks Rank #3 (Hold). Here we discuss these four stocks in brief:

Cimpress N.V. (CMPR): This Venlo, Netherlands-based company, sports a Zacks Rank #1. Its shares have declined 39.1% over the past year.

(You can see the complete list of today’s Zacks #1 Rank stocks here.)

In the past 60 days, the Zacks Consensus Estimate for earnings has increased 6.5% for fiscal 2019 (ended June 2019, results not yet released) and 13.1% for fiscal 2020 (ending June 2020).

                                           Price and Consensus: CMPR



Quad Graphics, Inc. (QUAD): This Sussex, WI-based company currently carries a Zacks Rank #3. The company’s stock has declined 59.6% in the past year.

In the past 60 days, the earnings estimates for 2019 and 2020 remained stable. The estimate for 2020 indicates year-over-year growth of 75.7%.

                                            Price and Consensus: QUAD



Issuer Direct Corporation (ISDR): The Morrisville, NC-based company currently carries a Zacks Rank #3. In the past year, the stock has decreased 49.7%.

In the past 60 days, the earnings estimates for 2019 and 2020 remained stable. The estimates for 2019 and 2020 indicate year-over-year growth of 19.3% and 25%, respectively.

                                         Price and Consensus: ISDR


 
LSC Communications, Inc. (LKSD): The Chicago, IL-based company carries a Zacks Rank #3. The company’s stock price has decreased 72.6% over the past year.

In the past 60 days, the Zacks Consensus Estimate for earnings increased by 5% for 2019.

                                    Price and Consensus: LKSD



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Quad Graphics, Inc (QUAD) : Free Stock Analysis Report
 
LSC Communications (LKSD) : Free Stock Analysis Report
 
Issuer Direct Corporation (ISDR) : Free Stock Analysis Report
 
Cimpress N.V (CMPR) : Free Stock Analysis Report
 
ARC Document Solutions, Inc. (ARC) : Free Stock Analysis Report
 
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