Xerox (XRX, Financial) is the world's leading provider of business process and document management solutions. The company provide services, technology and expertise to enable its customers - from small businesses to large global enterprises - to focus on their core business and operate more effectively. The company's main business areas are as follows:
Business Process Outsourcing: This includes services that support enterprises through multi-industry offerings such as customer care, transaction processing, finance and accounting, and human resources, as well as industry-focused offerings in areas such as healthcare, transportation, financial services, retail and telecommunications.
Document Technology and Document Outsourcing: The company's document technology products and solutions support the work processes of its customers by providing them with an efficient, cost effective printing and communications infrastructure. Xerox's Document Outsourcing service offerings help customers ranging from small businesses to global enterprises optimize their use of document systems, and also their related document workflow and business processes.
Information Technology Outsourcing: The company also provides flexible IT solutions, mapped to each client's needs and standards. On December 18, 2014, Xerox announced an agreement to sell its IT Outsourcing business to Atos SE. Subsequent to the closing of this transaction, Xerox will no longer directly market stand-alone IT services. Atos will provide IT services to Xerox's current BPO customers and will support much of Xerox's internal IT requirements.
According to sell side analysts, the company is expected to post an EPS of $0.98 in the current year and $1.08 next year. Its topline is expected to decline 5% in the current year. The main headwind for Xerox in the current year is adverse currency movements. The company's turnaround continues to gain traction. Citigroup recently upgraded the stock from Neutral to Buy with a price target of $15. According to Citi analysts Jim Suva, Joe Yoo and Michael Cadiz,
"While currency and pension expenses are near term headwinds, we applaud Xerox's efforts to continue their transformation towards a Services company and expect multiple expansion as the company executes on their business transformation initiatives towards margin expansion in their services segment. Moreover the company has divested the IT Outsourcing and has allocated close to $900 million in acquisitions which should generate incremental services revenue growth which is not currently modeled into our estimates. Shareholder return policies and free cash flow yield are very attractive."
The company have returned more than 50% of free cash flow to shareholders over the last four years, and plan to do the same this year by repurchasing up to $1 billion in shares and returning approximately $300 million to shareholders in dividends. The pending divesture of IT Outsourcing business will further improve its cash profile and the company will use excess cash for buybacks as well as to grow its business through acquisitions.
Xerox is trading at a PE of 11.71 and has a dividend yield of 2.50%. According to Gurufocus' DCF calculator, the stock has a margin of safety of 6%. The company's turnaround is gaining traction and analysts are bullish on the company. Out of 11 analysts covering the company six have buy ratings while five have hold ratings. I believe the stock is a good buy at current levels.
