Xerox: Risk Of Global Imaging Acquisition Rising

Citigroup’s Matthew Troy this morning lowered his rating on Xerox (XRX) to Sell from Hold, citing “an opportunity for existing shareholders to sell into strength and ahead of heightened risk and potential volatility into the early innings of the Global [Imaging Systems] (GISX) acquisition.”

Earlier this month, the company agreed to buy Global for $1.5 billion in cash.

“Positives at XRX are known and acknowledged in the equity market, including product leadership, color as driver of aftermarket and page yield inflection, capital structure simplification and strength in cash flow,” he writes, but adds that there are “few visible catalysts” in the second half.

He notes that the Global Imaging deal is “one of its largest deals in history,” and that the company also faces “decelerating core operating leverage and EPS growth, accelerating competitive response and potential inroads by disruptive business models and technologies,” which together could mean “dampening sentiment for a stock that has worked.”

His price target actually increases to $17 from $16. But he advises selling into strength.

Xerox today is down 46 cents at $18.14.

XRX 1-yr chart: