Xerox’s (XRX - Free Report) shares have gained a massive 58.4% year to date, significantly outperforming the 38.7% rally of the industry it belongs to.
We believe investors should hold on to the stock as Xerox has an aggressive transformation program in place aimed at improving productivity and operational efficiency, and reducing costs. This could make Xerox an attractive long-term play.
Aggressive Product Strategy to Revive Sales
Xerox’s top line has been declining over the years due to decreased demand for paper-related systems and products. As a counter strategy, the company has placed an aggressive product development program for new high growth markets. It aims to introduce print and software technologies in non-traditional markets such as 3-D printing, printing on packaging, printing internet of things sensors and AI workplace assistance. This could take time to generate desirable results but will create strong niche for the company once successful.
In a recent extension of partnership with HP (HPQ - Free Report) , Xerox now sources entry level machines from the company and supplies toners to it. Xerox now sells HP PCs, displays and accessories to its commercial customers. Further, HP has made Xerox’s cloud-based content management platform DocuShare Flex available on its commercial PCs distributed in the United States. Xerox’s partnership with American Express (AXP - Free Report) is serving the small business market better than before.
With all these, Xerox expects 6% decline in revenues in 2019 followed by 3% decline in 2020 and flat revenues in 2021 on a constant-currency basis.
Bottom Line Thrives
The company’s EPS and cash flow positions are in good shape driven mainly by cost cutting. For 2019, management maintained EPS guidance of $3.80 to $3.95, which indicates year-over-year increase of around 12% at mid-point. Free cash flow is expected to be between $1 billion and $1.1 billion.
Xerox Corporation EPS Diluted (TTM)
Xerox is undertaking a number of transformation efforts including "Project Own It" to increase productivity and operational efficiency, reduce costs and realign business to changing market conditions. The recently completed reorganization under a new holding company should help it attain greater strategic, operational and financial flexibility.
Zacks Rank and Stocks to Consider
Xerox currently carries a Zacks Rank #3 (Hold). A better-ranked stock from the broader Zacks Business Services sector is Fiserv (FISV - Free Report) , with a Zacks Rank #1 (Strong Buy) and long-term expected EPS growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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