On Jan 7, Zacks Investment Research upgraded information technology services provider Xerox Corporation (XRX) to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) largely on the back of healthy long-term fundamentals fuelled by the divesture of non-core assets and focus on inorganic growth. The stock is currently trading at a forward P/E of 12.1x and has long-term earnings growth expectation of 7.0%.
Why the Upgrade?
Xerox intends to divest the Information Technology Outsourcing business to digital services provider Atos for $1.05 billion in the first half of 2015. The initial proceeds of the divestiture will be used to boost share buybacks and expand in new markets by capitalizing on potential acquisition opportunities.
Xerox expects to increase its capital allocation for repurchasing shares in 2015 to approximately $1.0 billion and up to $900 million for acquisitions. Also with this divestiture, Xerox intends to refocus on its Document Outsourcing businesses and other high-margin business services to offset the decline of the document printing business.
At the same time, in order to expand its portfolio, Xerox acquired Consilience Software, Inc., a case management and workflow automation software provider. Additionally, the company launched an advanced analytics platform named Juvo, which allows hospitals to analyze patient-care data, and aids in improving healthcare quality.
The company also formed an alliance with the University of Michigan Mobility Transformation Center to develop sophisticated solutions aimed at transforming transportation globally. These actions are expected to strengthen its position in the healthcare and transportation markets.
In addition, Xerox acquired Seattle-based firm Intrepid Learning Solutions to expand its learning portfolio. Together, both companies signed a partnership alliance to benefit their clients with Intrepid’s technological expertise and Xerox’s e-learning, consulting, administration and classroom training programs.
Moving forward, Xerox 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 significant benefits in the long run.
All these bullish factors warrant a review of your portfolio basket to consider buying it if you are yet to have this stock or hold it for a little longer if you already own it.
Other Stocks to Consider
Some other stocks in the industry that also look promising include Franklin Covey Co. (FC), NV5 Holdings, Inc. (NVEE) and Stantec Inc. (STN), each carrying a Zacks Rank #2 (Buy).
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