For the third time in recent months, Lexmark International (NYSE:LXK) has been recognized as the leader in MPS from industry analysts. Gartner, IDC and UK based Quocirca have all recognized Lexmark as an MPS market leader. Lexmark competes in this space with Xerox (NYSE:XRX) and HP (NYSE:HPQ). 
MPS Drive Cost Efficiency
- Lexmark Earnings: Revenue Decline Across Printer Division Continues
- Lexmark Pre Earnings: Printer Revenue To Decline, Software Revenue To Report Growth
- Lexmark Earnings: Revenue Declines Less Than Expected As Merger And Delisting Seems Eminent
- Lexmark Earnings Preview: Decline In Revenue To Continue
- What Percentage of Lexmark’s Stock Price Can Be Attributed To Growth?
- Lexmark Earnings: Revenue Declines More Than Expected
Managed Print Services are being offered by most print solution manufacturers as the hardware market is highly commoditized and margins are low. We estimate the margins for hardware to be 16.8 percent and remain the same till the end of our forecast period. From the customers point of view MPS provides cost efficiency. The Quocirca report estimates that security and cost efficiency are the biggest drivers for enterprises to shift to MPS followed closely by reduction in carbon foot print and operational efficiency.
Lexmark has also won contracts from the USDA and Anehuser-Busch to provide MPS recently. MPS currently contributes to a small portion of the revenues, but is set to grow as it focuses its business on the service aspect. Currently the largest division for Lexmark is Laser Printers and Cartridges which constitute 75 percent of our current Trefis price estimate.
Focus On Services To Drive Business Growth
The MPS offering can be combined with Perceptive Software which is used to bring paper invoices, bills and other non electronic invoices into the electronic mainstream for more efficient processing. We estimate the margins of this business to be in the range of 25 percent and estimate that this would be the margins for MPS as well. Perceptive Software is the main service offering of Lexmark and constitutes 10 percent of the current Trefis price estimate.
We currently estimate that revenues from will reach $285 million at the end of our forecast period. If MPS and Perceptive Software drives services growth doubles to $570 million in the same period, we expect 12 percent upside to the current Trefis Price estimate. This may happen as MPS is growing more quickly than expected due to contracts won such as the USDA MPS contract.
We currently have a $31.86 Trefis price estimate for Lexmark, which is above the current market estimate.Notes: