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Near-Term Outlook for Commercial Printing Industry Lackluster

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:

  • The industry typically benefits from favorable consumer sentiment. Rise in personal income due to strengthening economy, availability of higher-wage jobs, lower taxes and many other factors have improved consumer spending. This, in turn, has boosted business opportunities for product manufacturers. In order to meet rising demand for their products and stay competitive, manufacturers are heavily using products and services, such as advertising materials, offered by commercial printing companies.
     
  • 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. In addition to advertising, demand for commercial printers have increased in areas such as office products, directories, labels, catalogues, documents management services, etc. On the flipside, heavy dependence on any particular industry for revenue generation can be a threat. For instance, ARC Documents Solutions, Inc. (ARC) sourced roughly 79% of its 2018-sales from architectural, engineering, construction and building owner/operator industry.
     
  • Growing preference for digital media in the advertising industry has restricted growth opportunities for commercial printing companies. This apart, other players in the industry (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 Bleak Prospects

The Commercial Printing industry is a 12-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #245, which places it in the bottom 4% 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 bleak 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 bottom 50% of the Zacks-ranked industries is a result of disappointing earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have moved roughly 64.9% down.

Before we discuss about 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 43.1% compared with the Zacks Industrial Products sector’s decline of 7.6%. The S&P 500 has increased 7.4% 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 7.19. This clearly shows that the industry is trading below the S&P 500’s forward 12-month EV/EBITDA ratio of 11.65 and the sector’s 13.68.

Over the past five years, the industry has traded at the highest level of 18.39x forward 12-month EV/EBITDA and lowest level of 6.62x. The median level, over the same period, was 12.63x.

Commercial Printing Industry’s Valuation Versus Sector



Commercial Printing Industry’s Valuation Versus S&P 500



Bottom Line

Increasing use of commercial printing services driven by favorable consumer sentiment stemming from growing domestic economy should help the stocks. However, headwinds from leveraged balance sheet, stiff competition, preference for alternative advertising media and others have clouded the near-term prospects of the industry.

The majority of the stocks within this industry currently carry a Zacks Rank # 4 (Sell) or 5 (Strong Sell). Here we discuss in brief four stocks:

Cimpress N.V. (CMPR): The stock of this Venlo, the Netherlands-based company carries a Zacks Rank #5. Shares have declined 54.3% over the past year.

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

In the past 60 days, the Zacks Consensus Estimate for earnings has decreased 16.9% for fiscal 2019 (ending June 2019).

                                      Price and Consensus: CMPR



Kornit Digital Ltd. (KRNT): The stock of this Israel-based company currently carries a Zacks Rank #4. In the past year, the stock has gained 73.6%. However, the outlook seems bleak as the company’s earnings estimates for 2019 have been revised down by 10.6% in the past 60 days.

                                        Price and Consensus: KRNT


 
Quad Graphics, Inc. (QUAD): The stock of this Sussex, WI-based company currently carries a Zacks Rank #5. The company’s stock has declined 56.4% in the past year.

In the past 60 days, the earnings estimates for 2019 have been lowered by 39%.

                                      Price and Consensus: QUAD



Multi-Color Corporation (LABL): The stock of this Batavia, OH-based company carries a Zacks Rank #4. The company’s stock price has decreased 23.7% over the past year.

In the past 60 days, the Zacks Consensus Estimate for earnings has been lowered by 19.3% for fiscal 2020 (ending March 2020).

                                          Price and Consensus: LABL



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