Pitney Bowes ‘the most compelling investment opportunity’ since GameStop in 2020: Strategist

Hestia Capital Managing Member and Chief Investment Officer Kurt Wolf joins Yahoo Finance Live to discuss calling for leadership changes at Pitney Bowes, investment opportunities, and how the company compares to GameStop.

Video Transcript


- All right. Well, weighing the envelopes in corporate overhauls, hedge fund Hestia making waves late last year for its call to reform postage specialist Pitney Bowes, saying the company has potential that's being held back by its leadership and board. Joining us to lay out his case, Kurt Wolf, Hestia Capital managing member and chief investment officer. So lay out your case, please. And for those of us who may not know what Pitney Bowes is, please.

KURT WOLF: Absolutely. Yeah. Well, good morning. Thank you for having me on. And thank you for giving me the opportunity to talk about Pitney Bowes. We at Hestia think this is the most compelling investment opportunity we've seen since GameStop back in 2020. And just to give context, the company currently trades for a little over $4 a share. We believe intrinsic value is about $15 to $20 a share.

And as you asked, a bit about the company. It's a postage and mail business. They have three segments, all of which are highly valuable, two of which are profitable, one of which has been poorly run, poor execution, poor strategy, and it's bleeding a lot of cash. And that really is where the opportunity lies. Fixing that business, we believe, will get the company back to $15 to $20 a share in terms of appropriate valuation.

And the problem there is that this company has an incredibly entrenched board and management team that are unwilling to accept and admit what everybody else knows. And that is for the past eight years the strategy they've pursued has failed. And it's going to continue to fail so long as they continue on the trajectory they're on. And that's why we've nominated seven highly qualified independent directors for this board of directors to bring fresh perspectives and help chart a new course for this company to achieve the returns and valuation that shareholders deserve.

- You go to YahooFinance.com, you pull up a five-year chart. The stock has been in the absolute toilet, and I think reflects what you are saying here. But what mistakes have they made? And what does a well-run Pitney Bowes look like?

KURT WOLF: Yeah, absolutely. So, the mistakes they've made-- And five years is a great time frame to look at. If you go back to 2019, they guided for their e-commerce business that they would be at 8% to 12% EBIT margins leaving this year. Exiting the year, EBITDA margins were significantly negative for the year. So they've missed by a country mile. It's been a dramatic miss.

And the reason for that gets the other part of your question, which is this management team does not have a logistics background, which is what this global e-commerce business is, and they don't understand how to run the business. So, they continue to set forecasts and have it run a strategy that simply won't work. And they continue to miss performance because they're pursuing a strategy that just isn't appropriate for the business and is never going to be successful.

- When we think about the other company that we know you to have been involved with, GameStop, you were on the board there, I don't exactly think of mail services in the same breath as video game seller. So how can we think of these two opportunities, or should we even be thinking about these two opportunities as having things in common?

KURT WOLF: They're incredibly similar. There are a few differences, but they're incredibly similar. First off, both of them are incredibly valuable businesses we believe that people misunderstand. The second similarity is that management doesn't seem to understand the value of the core business and is pursuing strategies that are leading to significant losses at the business, which are reinforcing the perception that their core business is troubled.

So the losses in global e-commerce, as an example here, is causing the overall performance of the business to decline significantly, which feeds into a lot of people's perception that mail's just a dead business. But their mail business itself is incredibly profitable. So there's a lot of similarities in that regard.

One big difference, quite honestly, is GameStop was slightly different in that when we got involved there was a new CEO, there was a new chairwoman. Here you've had a chairman who's been on the board for 26 years. During his tenure, if you had invested $100 in this company 26 years ago when he joined the board, you'd have $50. If you had invested in the S&P you'd have over $1,000. So a complete failure by the chairman who's been around forever. Similarly, under this CEO, he's been at the helm for 10 years and the stock's down 50% during his tenure. So, there's just entrenched failed leadership at this company.

- Why do you think lately we've seen the return of the activist investor? Of course, we had that we had the Disney-Pelt battle, we have with Pitney Bowes, we see Salesforce, really, with an unprecedented five activists in that stock. Is there something you folks in your community is seeing in markets right now?

KURT WOLF: Yeah. Well, my community, I'm not an activist investor. We've been in business for 15 years.

- Well, you're an activist investor sometimes.


- You're a voice for potential board members. That could be real change.

KURT WOLF: Yeah, absolutely. But in the community writ large, we've been around for 15 years almost. Now this is our second campaign. We don't like to run campaigns, simply because typically when we invest in companies, it's pretty obvious what needs to happen, and you have a management team that sees the same thing, so we simply need to sit by the sideline and watch. But in this situation, whether it's ego, whether it's inability to be mentally flexible, whatever it is, this management team and board seems completely unwilling to recognize, as I said, what everybody else knows, that their strategy is failing.

But if you do want an answer, my understanding, I do think COVID had a negative impact on the activist community. You know again, I don't think of myself as an activist, but I know that COVID seemed it was a difficult time for activists to really highly engage in change at companies because there was just so much uncertainty in the economy.

- Can we take a step back for a second? Julia just asked about the similarities with GameStop, but for a lot of our audience, which is heavily skewed towards retail, we think value, and all of a sudden these memories are conjured of what happened two years ago. That's not the norm. You're not hoping for a sky-high rocket-to-the-moon retail participation to carry the stock higher. You want to unlock that value. Maybe just describe what your process is in this.

KURT WOLF: Yeah. Absolutely. As far as unlocking value, absolutely that's what we target. We, as you said, we are a value investor. We're not looking for this to go up 100x like GameStop did. Certainly, we'd welcome that if that were to happen. But that's not what we're looking for. We see a tremendous fundamental business here. Again, their postage meter business is incredibly profitable. We see opportunities to improve operations there. They are, in the postage meter business, they're like Xerox used to be in the copier business.

Unlike the copier business but like GameStop, this business is going to be around a lot longer than people think. They have a mail sortation business. They're the number-one player. They're dominant in the space. Those are great assets to have about a business. Again, it really comes down to this global e-commerce business that they're completely mismanaging. And we have a lot of thoughts and we'll be, over the coming weeks, laying out who our interim CEO candidate is to replace Mark at the helm of this company and also to lay out what our plans are in terms of how we're going to turn this business around.

- And when you talk about turning the business around, I know that we heard from the business as well. We got a statement from Pitney Bowes, so we just have to say we did reach out to the company, and they said that they're disappointed that you didn't engage with them or that you disregarded, in their words, the constructive engagement that they were trying to have. Have you found them receptive at all to--


- --talking about it?

KURT WOLF: Virtually all the engagement has been our efforts reaching out to them. We have on multiple occasions initiated conversations with them, and we have attempted numerous multiple different offers in terms of let's discuss a certain change of composition of the board. Let's discuss the change of strategy. Let's discuss the CEO change. So we've come to them with multiple different offers trying to unlock this lack of communication. But the board has been completely unwilling to come back with any sort of agreement that would in any way improve the outlook for this business.

- As someone who went through the GameStop mania, two questions. One, how is that like for you? And then what is the long-term future for a company like that look like?

KURT WOLF: For GameStop?

- GameStop.

KURT WOLF: Yeah. It was an incredible experience. I feel incredibly fortunate to have been a part of that. As an investor, it's not often you get the opportunity to really change people's lives. And I think what we accomplished at GameStop improved the lives for a lot of GameStop customers and a lot of GameStop employees who now have a secure company going forward that they know their jobs are secure and the company they love will be successful. It was an incredible experience.

And I think we can do the same thing at Pitney Bowes. I think Pitney Bowes doesn't have quite the level of concern. But I think we can bring a lot of comfort or confidence to employees and customers that this company is finally going to start doing the right thing and the company has a very bright future.

- What about all the GameStop people who bought at the top?

KURT WOLF: What about their-- It's unfortunate. I don't mean to sound callous. Any time you invest there's a lot of risk that goes in it. It's unfortunate that people have lost money on it. But I would point to the other side of it, which is before we got involved, a true story. I had a current GameStop investor call me literally crying, saying that his retirement plan was GameStop because it was such a heavy dividend-paying stock, and they had just eliminated their dividend. He literally was crying on the phone, saying, my retirement has been destroyed. Please help us.

So I know that no investment works out for everybody. But I feel, unfortunately, the guy gave me a fake name. I tried calling him back and I couldn't reach him. But I wanted to find out. Hopefully he's happy now, so wherever he is, I believe out in Michigan, there's an investor out there that I hope this has been happy that we changed his retirement plans.

- Two sidestep free trade, I suppose

KURT WOLF: Absolutely.

- Thank you so much for being here. Hestia Capital managing member and chief investment officer, Kurt Wolf. Thank you.

KURT WOLF: Thank you.