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As I looked down at a desk at work, I noticed a calculator with the Xerox (NYSE:XRX) brand on the front facing. That prompted me to do some research to see if the company was still in business (the calculator looked like it was from 1985). That's when I remembered that the commercial with the Michelin Man was actually advertising for Xerox. That made me think, could Xerox be in the position that Apple (NASDAQ:AAPL) or IBM (NYSE:IBM) was in just before their successful comebacks?

Apple made a comeback due to significant innovation. It is known for its Macbooks, iPods, iPads, iPhones, etc. When I hear the name Apple, I think of smart thinking, innovation and well-designed devices. When I hear the name Xerox, for some reason, the old yellow robot from the Muppet Movie comes to mind.

IBM was able to reinvent itself by focusing its business on information technology. This move has made the company very successful in growing revenue, earnings and stock. I think that Xerox is now in a position to either become a successful turnaround story or turn into another Eastman Kodak (EKDKQ.PK).

Xerox just doesn't have a modern stand-out image anymore. The company needs something to propel it to above average earnings growth. The recent commercials do suggest that Xerox can better handle information technology, while allowing other companies to do what they do best. However, something is wrong when the company is only expected to grow earnings annually at 5.2% for the next five years. This is significantly below the average expected earnings growth of the S&P 500 of 10.29%.

Maybe Xerox needs to more effectively get the message across to potential customers. I think the next Xerox commercial should feature some of the companies that Xerox has been helping and show how much it has helped. For example, feature employees of a few of these companies saying one sentence, "Xerox has helped me save X amount of dollars by handling our outsourcing.' It should have 5 people from 5 different companies say this one sentence. Then, the next commercial could show 5 different people from another set of companies saying that sentence. This would get the message out to other potential businesses, better than the Michelin Man throwing tires or papers flying through a wind tunnel.

I found an old Xerox commercial from 1979. This commercial shows how innovative the company was back then. Xerox needs to get back to being innovative, not just in its daily operations, but also in marketing its business. The current commercials are just not accomplishing this, in my opinion.

Forward PE

PEG Ratio

Price to Book

Op. Cash Flow

Free Cash Flow

EPS

5.85

1.24

0.79

$1.98 billion

$2.7 billion

$0.90

The company is clearly undervalued, as it trades under its book value per share. It has solid cash flow and pays a dividend of 2.3%. I think it is on the verge of something great if management can execute properly. The company now needs to find a way to grow earnings at 10% per year or more to have a chance of beating the performance of the S&P 500 for the future. We need to see something better from the company for this to happen. Will it be the next IBM or Apple turnaround story, or the next bankrupt Eastman Kodak? Ms. Ursula Burns, now is the time to make your company great.

Source: Can Xerox Make A Comeback?