Xerox (XRX) has long been associated with printing. Xerox has since changed its direction by focusing more on technology and services. A year ago, revenue from technology and services was almost equal. Now, Services represents a higher percentage of total revenue. This reflects investments in building out the company's outsourcing portfolio as well as expanding the company's offerings internationally. Revenue from Document Outsourcing was up 12% in the most recent quarter and BPO revenue was up 6%. BPO signings came in at $2.3 billion, which is up over 10% year-over-year. Joint sales activities between Xerox and ACS have resulted in more than 200 deals this year. Many of these deals are also multi-year agreements which help build Xerox's revenue stream. One segment of particular interest is the performance from the services business.
I believe Xerox is in the middle of converting its business into a technology and consulting company. This move reminds me of IBM when it went through the process of liquidating its hardware business in order to focus more on consulting services. Xerox has done a great job in diversifying its business as printing started to suffer. Here are some examples of services that Xerox provides to customers. Xerox is actually the largest provider of transportation services to governments in the world. The company has projects in about 30 countries. Xerox has digital solutions for tolling, parking and public transit; these systems have been deployed in over 400 municipalities around the world. Xerox also has a strong presence in claims processing. A good example is the U.S. Department of Veterans Affairs; Xerox created the infrastructure and is currently managing the process to convert a paper-based claims system into a digital one. The new system for the VA will significantly reduce backlogs and more accurately process benefit claims for veterans and their dependents. Xerox should continue to benefit in this market as health care companies transition into an electronic format to comply with new health regulations.
I'm bullish on Xerox, and view pullbacks as opportunities to buy. Xerox is currently being dragged down by the market, so the $6 area should be a good spot to start a position. Even though a full transition may take time, I believe that long term shareholders should benefit from the company's turnaround. I like the direction the company is heading by focusing on the margin rich service business.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XRX over the next 72 hours.