We have been skeptical of the turnaround at Xerox (NYSE:XRX). Although the company frequently points to the strong growth in their color and digital product lines, it never seems to be enough for overall sales growth to keep pace with economic growth, because declining older businesses take it all away. What’s more, the suggestion that shareholders treat restructuring charges as one-time events stretches credulity when the company records them every year.
Moody’s raised Xerox’s senior unsecured rating one notch to “Baa3,” the lowest investment-grade rating, from “Ba1.” A rating change to investment grade can significantly reduce a company’s borrowing costs. The outlook on the rating is positive indicating it could be raised again over the next 12 to 18 months.
So good news for bondholders. For stockholders, however, we are still concerned about the declining cash flow.
XRX 1-yr chart: