Why Xerox Stock Just Fell By 11.5%?
28 Outubro 2021 - 7:47AM
Finscreener.org
Shares of Xerox
Holdings Corp. (NYSE:
XRX) fell by 11.5% on
October 26 to close trading at $18.2. The recent pullback has wiped
off the stock’s year to date gains and XRX is now down 1.7% in the
last year and has declined by almost 30% in the last five years,
grossly underperforming the broader markets.
In the
third quarter of
2021, Xerox reported
sales of $1.77 billion and adjusted earnings per share of $0.48.
Comparatively, analysts forecast Q3 sales of $1.81 billion and
earnings of $0.44 per share. We can see that Xerox surpassed
earnings forecasts in the third quarter, but fell short of top-line
estimates which led to the steep decline in XRX
stock.
Further, its sales were down 0.5%
year over year as the company was impacted by supply chain
disruptions and the Delta variant. Xerox’s gross and operating
profit margins also declined year over year in Q3. This was offset
by a tax benefit totaling $4 million that allowed the company to
grow its profits by 17% in the quarter.
Xerox expects near term weakness
to continue to impact sales in the near term and narrowed revenue
guidance to $7.1 billion in 2021, compared to Wall Street estimates
of $7.3 billion.
Alternatively, the company’s
management confirmed it remains on track to deliver over $500
million in free cash flow in 2021 which values the stock at just 12
times enterprise value-to-free cash flow.
An overview of Xerox?
Xerox Holdings is a workplace
technology company that designs, develops and sells document
management systems and solutions in the U.S., Canada, Europe and
other international markets.
It offers intelligent workplace
services as well as digital services that leverage software
capabilities in workflow automation, personalization and
communication software, as well as content management solutions and
digitization services.
The company now aims to improve
its operating model for greater efficiency which includes plans to
mitigate supply chain issues. Xerox has emphasized the importance
of investing in emerging technologies such as augmented reality and
robotic process automation as well as in business process
outsourcing and system enhancements to expand its revenue base and
drive efficiencies.
Xerox is also poised to focus on
the expansion of software offering to transform the service
experience. These goals will be met by scaling IT Services and
robotic process automation in the SMB market.
While these strategies might help
the company to increase revenue metrics over time, investors should
understand Xerox has seen its sales decline from $10.26 billion in
2017 to $7 billion in 2020. Its operating income also fell from
$931 million to $417 million in this period.
As mentioned earlier, Xerox
expects to generate over $500 million in free cash flows this year,
allowing the company to deploy excess capital to acquire companies
as well as increase investor wealth via share buybacks.
Is XRX stock undervalued or a value trap?
Wall Street expects sales to rise
by a marginal 3.4% to $7.26 billion in 2021 and then decline by
1.7% to $7.13 billion next year. However, its earnings are forecast
to rise by 26% to $1.78 per share in 2021 and by 22% to $2.17 per
share in 2022.
Given its market cap of $4.70
billion, XRX stock is valued at a forward price to sales multiple
of just 0.4x and a price to earnings multiple of 10.22x. It also
pays investors a tasty dividend yield of 4.9%.
We can see that XRX stock is
valued at a discount due to its falling sales and declining profit
margins, making it difficult for Xerox to outpace the broader
markets over the long-term.
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