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Will Xerox Beat The Market?

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In a report published Monday, BMO Capital Markets analyst Keith Bachman offered some thoughts on Xerox Corp (NYSE: XRX), noting that his "scorecard" for calendar year 2015 includes more positives than negatives.

The Positives

According to Bachman, Xerox's printing business has declined by an average of 6.6 percent year-over-year over the past three years. However, the company's increasing focus on the low-end laser market and its 2013 acquisition of production inkjet company Impika could help ease the declines in the segment.

Xerox will anniversary the loss of the Texas Medicaid contract in August 2015 that created approximately a -150 basis point year-over-year headwind to revenue growth. Meanwhile, Xerox has won two new meaningful contracts with the State of New York for Medicaid claims and to operate toll roads in Florida. The analyst noted that both of these new contracts should be awarded in the second half of the year and provide a "modest" revenue boost.

Finally, Xerox is in a position to expand its International operations which currently accounts for 25 percent of its business. The analyst said he "will not be surprised" if the company used M&A to try and accelerate services growth in Europe.

The Negatives

Bachman's "checklist" of negatives include continued foreign exchange impacts that resulted in a lower 2015 earnings per share estimate of $1.02 (from a previous $1.03).

There also exists some risk to printer margins moving forward. In 2014, Xerox's printer margins were 13.7 percent compared with 10.8 percent in the prior year. The improved margin was aided by lower pension expansions and favorable foreign exchange rates, especially the yen. For fiscal 2015, the analyst argued that the yen will help support only 15 to 20 basis points of consolidated margin (versus 40 basis points a year ago), providing a "muted" impact to margins at a time when the euro continues to weaken.

Q1 Estimates And Rating

Bachman is projecting the company to earn $0.21 in the first quarter on revenue of $4.524 billion when the company reports on Friday. This compares to the Wall Street Consensus estimate that is looking for an earnings per share of $0.21 on revenue of $4.511 billion.

Shares remain Market Perform rated with an unchanged price target of $14.50.

Latest Ratings for XRX

DateFirmActionFromTo
Apr 2019Initiates Coverage OnOutperform
Oct 2018MaintainsBuyBuy
Jul 2018MaintainsNeutralNeutral

View More Analyst Ratings for XRX
View the Latest Analyst Ratings

Posted-In: BMO Capital Markets euro foreign exchange Impika Keith Bachman printingAnalyst Color Analyst Ratings

 

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