Xerox (XRX), a former leader in the office and print technology market, strives to reinvent itself amidst the rapidly evolving technological landscape. The company has shifted from its legacy copier business towards delivering solutions for pressing technological needs in a modern, hybrid workplace. In its efforts to make a successful transformative journey, it offers a variety of services, including document workflow automation, digital documentation processing, and managed IT solutions.
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However, Xerox’s recent disappointing Q2 financial performance suggests it still has a way to go, raising concerns that it will be unable to maintain its current 9.35% dividend yield. This could lead to a negative market reaction and a further slide in share price. Investors may want to exercise caution until the company can demonstrate progress toward its much-needed transformation.
Xerox’s Strategic Shift
Xerox operates globally as a comprehensive workplace technology organization. The company has initiated a strategic shift from its traditional copier business towards more digitally suited solutions, such as document workflow automation, digital documentation processing, personalized communications, managed security, robotic process automation, managed IT solutions, and financing options. The operation is divided into two key segments: Print and Other and Xerox Financial Services (XFS).
Xerox’s Recent Financial Results & Outlook
Xerox Holdings announced its Q2 2024 earnings, which fell short of analysts’ expectations. The quarter’s total revenue was $1.58 billion, slightly below the anticipated $1.60 billion, marking a 10% decrease from last year. Adjusted net income of $41 million decreased by $31 million year-over-year, and adjusted operating margin declined by 70 basis points. The company reported earnings per share (EPS) of $0.29, which fell below consensus projections of $0.43.
Given these results, management has adjusted its 2024 revenue outlook, expecting a decrease between 5% and 6%. It also opted to revise free cash flow guidance to a minimum of $550 million. Despite these challenges, the company remains committed to its target of $300 million adjusted operating income improvement over 2023 levels by the end of 2026.
What Is the Price Target for XRX Stock?
The stock has been on an extended downward trajectory, shedding 43% in the past three years. It trades at the low end of its 52-week price range of $10.28 – $19.10 and continues to show negative price momentum, trading below the 20-day (11.83) and 50-day (12.97) moving averages. It trades at a significant discount to industry peers, with a P/S ratio of 0.23x, compared to the Information Technology Services industry average of 2.12x, reflecting the broad lack of enthusiasm for the shares.
Analysts following the company have been bearish on the stock. For example, Citi analyst Asiya Merchant recently initiated coverage on the shares with a Sell rating and $11 price target, noting the ongoing restructuring in the face of flat-to-declining revenues, which will likely require significant time and investments.
Overall, Xerox is rated a Moderate Sell based on four analysts’ recommendations and price targets. The average price target for XRX stock is $14.00, representing a potential 26.35% upside from current levels.
XRX in Final Analysis
As Xerox strives to reinvent itself, it faces significant challenges, as evidenced by its recent Q2 financial results, underscored by a double-digit decrease in total revenue from last year and an adjusted net income decline of $31 million, prompting concerns over the sustainability of its substantial dividend yield. While management remains committed to achieving significant operating income improvement by the end of 2026, investors might prefer to observe clear evidence of their transformative progress before venturing into this territory.
