Xerox (XRX) Soars to a New 52-Week High on Q2 Earnings Beat

Information technology services provider Xerox Corporation XRX recently hit a new 52-week high of $13.29 on Jul 25, 2014, before closing the trading session a notch lower at $13.15. This translates to a healthy one-year return of 36.3%.

Xerox's share price has been on a steady uptrend since Feb 2014. Despite its strong price appreciation, this Zacks Rank #4 (Sell) stock still has enough fundamentals that may further drive its price upward. The stock is currently trading at a forward P/E of 11.9x and has a long-term earnings growth expectation of 7.3%.

Growth Drivers

Xerox reported adjusted earnings (from continuing operations) of $322 million or 27 cents per share in the second quarter of 2014 compared with $345 million or 27 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter marginally exceeded the Zacks Consensus Estimate by a penny.

Revenues from the Services segment, which include Document Outsourcing DO, Business Process Outsourcing BPO and Information Technology Outsourcing (ITO), increased 2% year over year to $2,992 million in the reported quarter (57% of total revenues). While revenues from DO, ITO and BPO increased due to growth in commercial healthcare and commercial European BPO businesses, improvement in Europe and strength in healthcare offerings further bolstered the segment's top-line growth.

Xerox expects the Services segment to fetch 66% of its total revenues by 2017, up from 55% in 2013. To achieve this objective, Xerox is focusing more on vertical markets like healthcare. Xerox recently secured an estimated $500 million worth contract to reinstate New York's Medicaid management system, according to a Bloomberg report.

New York's Medicaid program, worth $52 billion, is the biggest in the nation. Xerox's selection as the vendor for the state may open doors to more lucrative opportunities for the document imaging giant, once the other states follow New York's footsteps and revamp their Medicaid payment systems.

The company has already begun to reap huge benefits from the Medicaid Management Information System (MMIS) through its successful implementation and CMS (Centers for Medicare and Medicaid Services) Certification in all the 31-state Medicaid programs. Also, Xerox is looking forward to expand its offerings through inorganic measures to add more clients to its portfolio.

Other Stocks to Consider

Other stocks that look promising in the industry include Canon Inc. CAJ, Lexmark International Inc LXK and Ricoh Company, Ltd (RICOY), each carrying a Zacks Rank #2 (Buy).