For years, Xerox (NASDAQ:XRX) was the dominant market leader in copy technology, so much so that its very name was entered into the dictionary as a verb. However, the company has fallen on hard times since its days of being an S&P 500 (SPX) darling, trading at over $160/share. Today, management at the company seeks to recapture the magic through reinvention, but recent earnings misses suggest there is still a long way to go. XRX stock is down over 27.7% YTD, and though it trades at a discount, it may be more of a value trap at this point.
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Consequently, I believe investors would be wise to hold off and monitor the stock for more positive signs of a turnaround from the company before entertaining an investment.
The Reinvention of Xerox
Once upon a time, Xerox led the vanguard in office and print technology, leaving a legacy that spanned over a century of revolutionizing the marketplace. However, the company couldn’t keep pace with technological change and struggled to transition from providing fewer copiers to more digital and IT services.
The new management team has attempted to refocus the company away from copiers and toward delivering business and technology solutions designed to address productivity issues that arise in a hybrid workplace and among distributed workforces.
Xerox has rolled out a line of service offerings containing document workflow automation, digital documentation processing, personalized communications, managed security, robotic process automation, managed IT solutions, and financing options.
Xerox’s Recent Financial Results & Outlook
Xerox recently announced financial results for Q1 2024. The reported revenue of $1.50 billion was short of the consensus estimate of $1.53 billion. The company also missed on earnings per share of $0.06, which fell well below the anticipated analyst estimate of $0.35.
During the quarter, the company kicked off a comprehensive organizational redesign aimed at building a more robust and stable business. This move included the decision to exit certain manufacturing operations and sell direct operations in four Latin American countries.
Going forward in 2024, the Xerox management team expects a revenue decline of 3% to 5%, an adjusted operating margin improvement of at least 7.5%, and free cash flow of at least $600 million. Given the lackluster start to the year, these last two are likely challenging targets.
Is XRX Stock a Buy, According to Analysts?
Analysts following the company have been somewhat cautious about the stock. For example, Argus Research analyst John Eade recently reiterated a Hold rating, noting that he is looking for another quarter or two of earnings improvement before shifting to being more constructive on the stock.
Xerox is rated a Moderate Sell based on the recommendations and 12-month price targets three Wall Street analysts issued over the past three months. Their average price target for XRX stock is $15, which represents an 11.9% change from current levels.
XRX stock has been trending downward, losing roughly 23% over the past 90 days. It continues to demonstrate negative price momentum, trading below the 20-day (15.32) and 50-day (13.48) moving averages. Still, it looks to be relatively undervalued, with a P/S of 0.2x compared to the Information Technology Services industry average of about 2x.
Closing Thoughts on Xerox
The new management team at Xerox has their work cut out for them if they are going to revitalize the company effectively. These turnarounds take time. The stock trades at a discount, and long-term investors may be rewarded, though there is no apparent rush to jump into a circuitous journey with an uncertain destination. Thus, I believe there may be a better window of opportunity, with more clarity on progress yet to come.
