Xerox (XRX) - Xerox Corporation engages in the development, manufacture, marketing, service, and finance of document equipment, software, solutions, and services worldwide. The company operates in three segments: Technology, Services, and Other. The Technology segment provides multifunction printers, copiers, digital printing presses, light production devices, and desktop monochrome and color printers for office users. This segment also offers Extensible Interface Platform, a software platform that provides tools to create server based applications; and Xerox Mobile Print Solution, Xerox Mobile Express Driver, and Secure Access Unified ID System.
Valuation and Price Targets – My pick in the under $10 category, XRX is selling at a little under 10 times 2011’s projected earnings and a little over 8 times next year’s consensus. It’s selling at both .64 trailing revenues as well as its projected PEG. It provides a dividend with a 1.7% yield. Xerox almost tripled its operating cash flow from fiscal year 2008 through fiscal year 2010 as it has grown the percentage of revenues it gets from services. Price targets are $13 at Citigroup, $14 at S&P and the street.com has their target at $13.47.
Cisco (CSCO) - Cisco Systems, Inc. designs, manufactures, and sells Internet protocol (IP)-based networking and other products related to the communications and information technology industry worldwide. It offers routers that interconnect public and private IP networks for mobile, data, voice, and video applications; switching products, which offer connectivity to end users, workstations, IP phones, access points, and servers; application networking services; and home networking products, such as adapters, gateways, modems, and home network management software products. The company also provides security products comprising span firewall, intrusion prevention, remote access, virtual private network, unified client, Web, and email security products; storage area networking products that deliver connectivity between servers and storage systems; unified communication products to integrate voice, video, data, and mobile applications on fixed and mobile networks; video systems, including digital set-top boxes and digital media products; and wireless systems.
Valuation and Price Targets – In the $10 to $20 category, I have selected the much maligned and consistently disappointing CSCO. After its most recent selloff, Cisco sells at around 10 times this year’s earnings and a little over 9 times 2012’s projected earnings. It is expected to grow revenues over the next two years at 6%-8% and sells for a PEG of around 1. Cisco has a pristine balance sheet with almost $5 a share in net cash and sells at only 9 times operating cash flow. CSCO is at the bottom of its five year valuation range based on P/E, P/S, P/B, and P/CF. It pays a dividend of 1.5%, which should grow over time as CSCO has excess cash and is generating massive cash flow. CSCO is currently selling at $16.26. Price targets are at Credit Suisse is $26, $24.50 at Morgan Keegan and $23.00 at Feltl & Co.
Patterson UTI-Energy (PTEN) - Patterson-UTI Energy, Inc. provides onshore contract drilling services to independent oil and natural gas operators in North America. It offers pressure pumping services, including well stimulation and cementing for completion of new wells, and remedial work on existing wells to oil and natural gas operators primarily in the Appalachian Basin. The company provides contract drilling services principally in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, Pennsylvania, and West Virginia, as well as western Canada. It also owns and invests in oil and natural gas assets located primarily in Texas and New Mexico. As of February 11, 2010, the company had approximately 350 marketable land-based drilling rigs.
Valuation and Price Targets – Patterson is my pick in the $20 to $30 range. PTEN sells at 14 times expected 2011 earnings of $2.14 and around 11 times 2012's consensus of $2.62 a share. It has beat earnings estimates each of the last four quarters. It also has had its 2011 and 2012’s consensus earnings lifted significantly over the past ninety days. Its PEG is under 1, is priced at around 8 times operating cash flow, and its rig count is increasing. PTEN is selling at $27.75. Price targets are $40 at Credit Suisse, $36 at Susquehanna and $37 at S&P.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XRX, CSCO over the next 72 hours.