The Death Of Xerox?


  • I had a speculative buy on this name if the yield hit 3.5%.
  • The business is in very rough shape and I discuss the most recent results.
  • The company desperately needs a catalyst, which the pending separation may provide.

When I initiated coverage on Xerox (NASDAQ:XRX), I concluded that the stock wasn't dead, and in January, I opined the name was also not "dead money." That is important to reiterate. But this once-stellar blue chip has certainly fallen from grace, big time. I then told you that the company was "not dead yet." But friends, are we approaching the death of Xerox? I mean, it has been struggling for a long time. I suggested on nice dips you could buy simply for the yield and collect the dividend, but growth was nowhere to be found. I had said in my prior work numerous times that we needed to see some improvement in the underlying metrics before I could get behind the name. Well, in the past three months, the stock has moved sideways to higher, but will there be sustained momentum? That is tough to tell, but the name has been downgraded and the most recent earnings were not great.

The truth is that performance has been pitiful of late and is the reason shares have declined. Well here, Q3 shows that there are still declining revenues. Revenue as a whole came in at $4.21 billion, and this missed estimates by $100 million. However, this was also down 5.4% year over year, continuing a string of declining quarters. In addition, the degree of declining revenues seems to be picking up and this is real bad news. Of course, as I have discussed in-depth in other articles, the strong dollar has hurt companies with international businesses.

Thus, we need to look at revenues on a constant dollar basis. Doing so, we still see revenues were down 4% year over year. That is still a huge negative. Revenue from the company's "services" business was $2.4 billion, which was actually up 1% (but down 2% in constant dollars) with margins at 9.2%.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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