On Mar 17, Zacks Investment Research upgraded information technology services provider Xerox Corporation XRX to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) primarily on the back of improving fundamentals. Xerox shares are currently trading at a forward P/E of 12.5x with long-term earnings growth expectation of 7.7%, which reflects its inherent growth prospects.
Why the Upgrade?
Xerox continues to grow globally through successful acquisitions and disposal of non-core assets. The company divested its Information Technology Outsourcing (ITO) business to Atos – a leader in digital services provider – for $1.05 billion. The transaction also includes an additional consideration of $50 million on closing, which is expected in the first half of 2015. The initial proceeds of the divestiture will be used to boost share buybacks and acquisition spending.
With this divestiture, Xerox intends to refocus on its Document Outsourcing businesses and other high-margin business services to offset the decline in the document printing business. The company remains focused on enhancing its Services offerings and expand globally as it aims to invest up to $900 million in acquisitions in 2015.
Xerox also remains committed to its 5-plank strategy that is centered on portfolio management, global growth, cost transformation, operational excellence and analytics. With sustained investments to expand geographical footprint and build its services capabilities in areas that provide significant customer value, Xerox expects to reap benefits in the long run.
In order to better adapt to the changing market trends, Xerox is continually shifting its business model by expanding indirect distribution channel and streamlining its supply chain and product portfolio. Going forward, the company expects to maintain its strong market share in the Document Technology business with innovative products to meet the demands of customized communications in digital printing. These include waterless and inkjet-based solutions that enable print providers to deliver tailor-made services.
Xerox is also integrating its market-leading Managed Print Services (MPS) with its business process and IT outsourcing capabilities. MPS enables clients to gain visibility and control of printing to save money, improve productivity, boost environmental sustainability and document security. The integration will automate workflow with technology and consulting services to help clients meet the requirements of mobile workforce. At the same time, Xerox generates significant cash flow and deploys it to maximize shareholders value.
Stocks to Consider
Other stocks that look promising and are worth a look now in the industry include Cardtronics Inc. CATM, ExamWorks Group, Inc. EXAM and General Employment Enterprises Inc. JOB, each carrying a Zacks Rank #2 (Buy).
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