07/21/10 Alexandria, Virginia — Lexmark International (NYSE:LXK), the Lexington, Kentucky-based printer manufacturer, received a recent downgrade from Morgan Stanley based on its competition, potential for growth, and risky earnings. Today, Agora Financial editor Dan Amoss considers the downgrade and takes a peek into LXK’s future.
From Amoss’ latest reader update:
“Morgan Stanley downgraded Lexmark (NYSE:LXK) last Wednesday. This pushed the stock lower in an otherwise strong market. Morgan Stanley cited the following reasons:
1. Increased competition in laser printers as HP’s component constraints ease
2. Reduced growth benefits from inventory restocking
3. Earnings risk from the recent depreciation of the EUR against the USD
“Morgan Stanley also mentions a check of its proprietary data on electronics inventory. This check suggests that Lexmark’s hardware inventory grew 17% in the first quarter, but is down 20% since then.
“If Lexmark’s inventory really swung that much, then its orders and production probably slowed sharply in the second quarter. This is a harbinger of a potentially shocking earnings disappointment.”
We’ll find out about the potential earnings disappointment on July 27th, unless, as Amoss also mentions, we see a negative preannouncement first. To figure out how to act on the news you should consider subscribing to Dan Amoss’ Strategic Short Report. You can sign up through the Agora Financial reports page, which is found here.
Best,
[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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