Commentary & Analysis
Watching You Watching Me
Equity Analysts and Digital Print By Carro Ford Weston In terms of digital printing trends,
By WhatTheyThink Staff
Published: September 7, 2006
Equity Analysts and Digital Print By Carro Ford Weston In terms of digital printing trends, "they look at anything that will help them make good investment decisions and get a better return on capital." August 7, 2006 -- The financial analyst community is huge. Over 3,000 hedge firms and as many mutual fund firms plus institutional investors all want to get in, make an investment, and get out with the best return they can. The financial analysts who track the digital printing industry are a very concentrated subset of this group. You may have more in common with these Wall Street equity analysts than you realize. Like many print professionals, they want to know how the companies they track can set themselves apart in a crowded marketplace. What can printers do to differentiate their business and drive more revenue? What will give players an edge as the market matures? Are these questions familiar? Ed Crowley, founder of the Photizo Group (and ODJ contributing editor), educates and updates many of the biggest equity firms and analysts about the digital printing industry. In this month's column, he shares insights about this specialized community and what they have to offer the printing industry. In terms of digital printing trends, "they look at anything that will help them make good investment decisions and get a better return on capital." "Most analysts work with a big pool of capital, and they try to get the best return they can. There is a huge amount of capital out there, trillions of dollars in private equity funds," he says. In terms of digital printing trends, "they look at anything that will help them make good investment decisions and get a better return on capital." Naturally, there is less interest in privately owned companies, although some analysts get involved in private equity deals. Of course, analysts don't just follow print service providers. There are plenty of interesting public companies on the vendor side, too. For example, close to 100 analysts track Xerox stock. "Xerox is perceived to have a strong position in digital printing, and so is Océ," Crowley says. "The Street is closely watching Ricoh and Canon MFPs, and it will be interesting as traditional copiers and other such technology moves upstream." Some analysts have a good understanding of the digital industry; others just see the surface. Some firms have rigorous research departments. Others are pulled 15 different ways tracking multiple industry segments and have only a peripheral understanding of this business. "It's hard to generalize because they run the gamut in knowledge and mindshare," he says. Variable Knowledge & Awareness You'd expect a basic level of industry knowledge, but sometimes analysts don't know things printer folk take for granted. "One equity analyst who tracks HP didn't know they don't make their own engines," Crowley notes. "But give the guy a break; he is investing in multiple companies in five different sectors." "The biggest weakness may be that a lot of these guys are financially focused, so they hone in on numbers and miss the nuances." On the whole, the analysts who follow this sector are pretty knowledgeable and have good sources of information. They meet with industry execs, contacts in the supply chain, and researchers like IDC, Gartner and, of course, Photizo. Although they use a variety of resources, they rely on their instincts to draw conclusions. "The biggest weakness may be that a lot of these guys are financially focused, so they hone in on numbers and miss the nuances." It's also hard to generalize what it is about the digital industry that most interests the Street. "Some analysts like what they see and are making big bets on this market," he says. "They're the ones holding top positions in major printing-related companies. We're talking massive amounts in the millions of shares. Typically people taking big positions in digital printing companies have a good understanding of the industry and its nuances." There are as many investment approaches as there are analysts, but almost all are focused on how a company will fundamentally perform. Typically, financial analysts tracking digital print look at three things, according to Crowley: * What's new in technology --what will give a company an advantage or leverage? According to Crowley, the key word for analysts is "differentiate." Any way a printer can stand out is valuable, whether it's by adding statements processing or incremental services like finishing. * Market dynamics –a holistic view of trends and who is winning and losing. Anyone watching the industry has seen VDP emerge as a prime differentiator, and analysts are also tuned in to this trend. * The companies themselves –their internal management, morale, how good are they at predicting their own results, how transparent are they with analysts. Their cumulative knowledge makes analysts pretty good at predicting how a company will do. I see analysts wondering if we are at the point where page counts will fall off," By noticing what analysts are asking and writing about, you can spot trends headed your way. "For instance, I see analysts wondering if we are at the point where page counts will fall off," notes Crowley. "Newspaper and magazine readership sales are off, so what about the digital printing market? How fast will the trend move and whom will it impact the most?" If you want to think like an analyst, he has some recommendations. "Thompson and other data services are good sources of information, as is the old standby, the Wall Street Journal. Your local stock broker may have access to reports, too." Understanding what interests or worries these analysts could be helpful as you run and plan your own business strategy. It always pays to keep an ear to the "Street."