The analysis of Lexmark LXK In 2005, Berkshire Hathaway has purchased approximately one million shares of Lexmark. I have not followed this story closely, but I assume that the stock was purchased by Lou Simpson rather than Warren Buffett. I have two reasons to believe that the total purchase amount was low compared to Berkshire Investable assets purchase and Lexmark is typical of the investment philosophy Simpson (or at least what little I can glean about his investment philosophy of your past purchases ). Regardless of who made the purchase, a new holding company Berkshire still attracts a lot of comments. Lexmark commentary was almost uniformly negative. While many investors have a very low price for the Lexmark. Now I am not against the investor. Psychology and the sense not to get all my thoughts. I bought stocks trading near five-year low, and I bought stocks trading near five-year high. I just try to be rational. I am not afraid to agree with the consensus, if it is a good representation of reality. Here, it is not. Lexmark model that arose in my mind in recent weeks has little resemblance to the Lexmark I've seen described elsewhere. Most of the negative comments on Lexmark have focused on the segment of consumers. However, over 75% of its profits come from Lexmark industry. The industry was Lexmark franchise. There, the company has managed to build a moat, not a very large gap, but still a shortcoming. Lexmark is the only focused, integrated printing company of no consequence. Understanding the business needs of customers, providing tailored solutions that none of its competitors offer. Throughout the world, very large companies use Lexmark products highly specialized for certain tasks. Among these are the retailers, banks and pharmacies. Lexmark has complete control of their product, including the printing technology and software used to manage its printers (ie, to interface with the user of the computer.) Companies who care about these tasks done right (and make them convenient) to use Lexmark. Even competitors Lexmark is to see the Lexmark printer that knows better than anyone else. Lexmark is the only company that develops its own ink – jet, color laser and monochrome technology. This is a printer vertically integrated company like no other. The two most often cited as threats to Lexmark are HP and Dell. While around the world suffer from deep price cuts, I believe that HP and Dell, which should be afraid. Lexmark has the highest position. For the years to come, will be the best start of printing ink-consuming tasks. Lexmark is not focused on direct competition with companies in the consumer segment is about to change due to the emergence of photo printing market. Lexmark is not interested in selling hardware. He is interested in selling ink. Now there is a real demand for the emerging print quality at home, Lexmark course will begin after the consumer market. Over the next few years, Lexmark will sell more printers in this segment. A few years later, the applicant company strong revenues from sales of ink. Generic ink cartridges are the biggest threat to the wide degree of press. However, I think, of all the players in this industry, Lexmark will be less affected. Its highest margin sales are the most isolated of sale. Its lower margin of sales, at least its dominant position of enterprises, which are generic ink for more evil. E 'also concerned that Dell can still quit using Lexmark printers. Let them. From what I can see, the sales of Dell will not be particularly significant free cash flow of high-margin businesses. There is no benefit to the brand or Lexmark. This mark will strengthen over the next decade, because the quality is already there. Lexmark has simply not been visible to consumers. Dell does not help build the Lexmark brand. Honestly, I would not be terribly upset if Lexmark Dell sales dropped to zero tomorrow. This drawback does not affect the value of my Lexmark. For my part I can say, Lexmark management is excellent. They include the printer business better than anyone else (but also to understand the science of the press better than anyone – CEO Paul Curlander holds a doctorate in electrical engineering at MIT). Lexmark also sees the management of highly profitable opportunities in printing long – term, despite a very competitive situation in the short – term. I agree with this assessment. In the case of the printer, there is a real danger of ferocious price competition. However, I do not think there is a real risk of prolonging the fierce price competition. Lexmark is the company best placed to survive the storm. It generates tons of free cash flow, none of which must be diverted from other business lines, as well as to all competitors Lexmark. Lexmark high free cash flow margin will provide recurring revenue streams with more than enough ammunition beyond its competitors. They can be deep pockets, but ultimately that will have to respond to Wall Street. Long – term, can not compete with Lexmark. It will take some 'time to understand that. However, Lexmark has the time. E 'la mia qualitative reasons Lexmark. How does amount of stock? The stock sale is about 15 times and 10 times cash flow profits. At present, a dollar bought a dollar stock sales of Lexmark. I think this is a good deal. Not many companies of this caliber sell for – for – sale of a report. Over the past ten years, Lexmark return on capital has not dropped below 20%. During the same period, the complainant's return on assets never fell below 10%. The margin of free cash flow was generally within 5 – 10%. I would not be surprised to see the Lexmark ROE and free cash flow decreased significantly in the coming years. However, long – term, I think that the return on equity of 15-20% and free cash flow margin of 8-10% are viable. In fact, if I had to choose an exact ROE Lexmark could argue that I chose 20%. But I also want to be careful not to expect over the next five years. The important thing is the estimate of 8-10% margin of free cash flow. This is the best way to value Lexmark. At a time sale, 8-10% return, if you think sales can be sustained. If you think that sales could reach, you need to factor that into your analysis. At present, a discount rate of 8% seems appropriate. I've never done a promotion of free cash flow analysis on this blog, because I think that the variables that are something you must decide for you. I do not want to write an exact figure of the value of a company, because I do not want to suggest that kind of precision. But here you can see clearly as I value Lexmark. I gave you what I think Lexmark margin will be free cash flow (8-10%), to know what the sale of Lexmark ($ 5.4 billion), and I gave the rate of discount was more appropriate to think ( 8%). The only variable necessary, is not to provide an estimate of growth in sales, and I am not going to predict that, because I do not want to think of something that has to do with the next five years. It is not. I'm looking for the company beyond this point, and I like what I see. Lexmark strengthens its brand (with consumers), and people feel good. So, yes, I am projecting growth in sales of Lexmark, and yes, it is enough to suggest Lexmark is more than $ 5.5 billion. The analysis of Lexmark LXK In 2005, Berkshire Hathaway has purchased approximately one million shares of Lexmark. T can follow this story closely, but I assume that the stock was purchased by Lou Simpson rather than Warren Buffett. I have two reasons to believe that the total purchase amount was small compared to Berkshire? S Investable assets and Lexmark purchase is typical of Simpson? S investment philosophy (or at least what little I can glean about his investment philosophy of your past purchases). Regardless of who made the purchase, a new holding company Berkshire attracts many commentary.The Lexmark comment was almost uniformly negative. Many investors have a very poor view of Lexmark at these prices. Now I am not against the investor. Psychology and the sense not to get all my thoughts. I? I bought stocks trading near five-year low, and me? I bought stocks trading near five-year high. I just try to be rational. I am not afraid to agree with the consensus, where? An accurate representation of reality. Here? T. Lexmark model that appears in my mind in recent weeks has little resemblance to the Lexmark I? I saw elsewhere.Most describes the negative comments on Lexmark have focused on the segment of consumers. However, over 75% of Lexmark? The profits of the sector. Lexmark is the business? S franchise. There, the company has managed to build a moat, not a very large gap, but still a shortcoming. Lexmark is the only focused, integrated printing company of no consequence. It includes its customers? needs, providing tailored solutions that none of its competitors can offer. Throughout the world, very large companies use Lexmark? S for some highly specialized tasks. Among them are retailers, banks and pharmacies. Lexmark has complete control of their product, including the printing technology and software used to manage its printers (ie, the user interface? Computer S). Companies who care about these tasks done right (and make them convenient) to use Lexmark.Even Lexmark? Competitors must note the fact that the Lexmark printer knows better than anyone else. Lexmark is the only company that develops its own ink? jet, laser black and white and color technologies. This is a vertically integrated printer as anyone else. The two most often cited as threats to Lexmark are HP and Dell. While everyone suffers from deep price cuts, I think? HP and Dell, which should be scared.Lexmark a much stronger competitive position. For the years to come, will be the best launch of consumer products Printing Ink tasks. Lexmark nt centered on the direct competition with companies in the consumer segment, which ones? May change due to the emergence of photo printing market.Lexmark is not it? T interested in selling hardware. E? S interested in selling ink. Now there is a real demand for emerging high-quality prints at home, Lexmark will start to go after the consumer market. Over the next few years, Lexmark will sell more printers in this segment. A few years later, the applicant company strong sales of ink cartridges are sales.Generic the greatest threat to the wide degree of press. However, I think, of all the players in this industry, Lexmark will be less affected. Its highest margin sales are the most isolated of sale. Its lower margin sales, less dominant in its businesses, which are not generic ink most.There is also concerned that Dell may still waive the use of Lexmark printers. Let them. From what I can see, the sales of Dell will not be particularly significant free cash flow of high-margin businesses. There is no benefit to the brand or Lexmark. This mark will strengthen over the next decade, because the quality is already there. Lexmark simply n? It was not visible to consumers. Dell does not deal with? T to help build the Lexmark brand. Honestly, I can t terribly upset if Lexmark? S Dell sales fell to zero tomorrow. This event would not have a significant impact on my evaluation of Lexmark.As I can tell, Lexmark? S management is excellent. They include the printer business better than anyone else (but I also understand the science of the press better than anyone else? CEO Paul Curlander holds a doctorate in electrical engineering at MIT). Lexmark? S management is also very profitable opportunities in the press of time? term, despite a situation of competition in the short? term. I agree with your printer assessment.Within this activity, there is a real danger of ferocious price competition. However, I do not think there is a real danger of long fierce price competition. Lexmark is the most suitable to withstand the storm. It generates tons of free cash flow, none of which must be diverted to other lines of business, as well as to all Lexmark? S competitors. Lexmark? S high margin recurring free cash flow stream with more ammunition sufficient supplies beyond its competitors. They can be deep pockets, but ultimately that will have to respond to Wall Street. Long? term, can not compete with Lexmark. It will take some 'time to understand that. However, Lexmark has time.That? O my Lexmark qualitative grounds. How does the stock look quantitatively? The stock sale is about 15 times earnings and 10 times cash flow. At present, one dollar of Lexmark? S buy a stock of dollars in sales. I think? A good deal. Not many companies of this caliber to sell? ? one.For sales over the past ten years, Lexmark? s return on equity has not dropped below 20%. During the same period, the company? The return on assets never fell below 10%. The margin of free cash flow was in general a 5? 10% do range.I? Do not be surprised to see the Lexmark? S ROE and free cash flow decreased significantly in the coming years. However, the time? term, I believe that the return on equity of 15? 20% and a margin of free cash flow by 8? 10% are viable. In fact, if I was forced to take an exact ROE Lexmark support that I could choose 20%. But I also want to be careful not to expect over the next five years or so.The important is the estimates of 8? 10% cash flow margin. That? S the best value Lexmark. At a time sale, you have an 8? 10% return, if you think sales can be sustained. If you think that sales could reach, you need to factor that into your analysis. At present, a discount rate of 8% seems appropriate.I never reduced free cash flow analysis on this blog, because I believe that the variables that are something you must decide for you. I don? T want to type in an exact figure of the value of a company, because I do not t to offer this kind of precision. But here, you can clearly see how I? Lexmark D value. I gave you what I think Lexmark? S margin of free cash flow will be (8-10%), to know what Lexmark? S sales ($ 5.4 billion), and I gave the discount rate was I believe the most appropriate (8%). The only variable t is not that I needed an estimate of the expected increase in sales, and I am not going to predict that, because I do not want t think it has something to do with the next five years.It n? T. I'm looking for the company beyond this point, and I like what I see. Lexmark strengthens its brand (with consumers), and people feel good. So, yes, I am for projecting revenue growth Lexmark, and yes, just think Lexmark is more than $ 5.5 billion.Geoff Gannon writes a daily value investing blog and produces a weekly (half hour) l 'investment podcast