Xerox's (XRX) Move into Data Management Could Put More Green in Investors' Pockets - Barron's
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Price: $14.38 --0%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 5.4%
EPS Growth %: -87.8%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 5.4%
EPS Growth %: -87.8%
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Shares of Xerox (NYSE: XRX) are soaring today, up 7.6%, as a Barron's article highlights how the company's push from a hardware-only company into data services is benefiting both the top- and bottom-lines.
Xerox is now starting to run Cleveland's traffic-violations system: installing and monitoring cameras at intersections, exchanging information with DMVs about violators, fines process and recommending safety improvements and upgrades.
CEO Ursula Burns may be credited with the swing back into profitability and predictability. She orchestrated the $6.4 billion acquisition of Affiliated Computer Services.
As a result, XRX now derives about 50% of its revs from services, from 23% in 2009. Free cash flow is up from $1.2 billion in 2008, to $1.5 billion last year.
An analyst at Seligman Investments says that if XRX can hit a P/E of 12x, which is just below its five-year average of 13, then shares could jump to $14 - $15 in 2011. The figure is a 50% premium to today's trading price of $9.80. Forward P/E is right around 9.1x today, following the unusual surge in the stock price. Looking back at last Friday gives us a P/E of 8.5x.
The acquisition of ACS has added to XRXs sustainability, as revenues are recurring based on multi-year, signed contracts. Investors, especially value investors, like predictable revenue streams. One analyst sees free cash flow to jump to 14%, from 8 - 9% currently.
CEO Burns calls that company a "cash machine" that generated $2.2 billion of operating cash flow in 2009, and is on track to see $2.6 billion in operating cash flow this year. With the extra cash being used to pay off the ACS acquisition debt, XRXs board of directors may be looking to increase their dividend. The current dividend, an annualized rate of $0.17, yields about 1.7%. The company expects to have about $1 billion in cash for dividend, acquisitions, and stock buybacks by mid-2011.
COO Tom Blodget notes that, when ACS won a 10-year, $1.6 billion bid to manage California's Medicaid information systems, XRX was able to grab a contract to manage their printing services.
XRX still wants to stay in the printing business, which generates 46% of the company's revs. Lately, printing revs have increased 12% due to companies switching to color machines and multi-purpose machines. IDC notes that XRXs installed base accounts for about 50% of total page volume worldwide. XRX has a 49% share of the $7.8 billion managed-print services market, more than double what its nearest competitor can boast. IDC predicts this sector will grow 9.4% to $8.5 billion this year.
XRX has also been able to increase their presence in the business-processing outsourcing arena, a $32 billion per year market.
Burns notes that what they do is at the very core of non discretionary spending, in good or bad times. She said that they've adopted the motto "penetrate and radiate," meaning that once you show a customer what you can do in one area of info management, XRX will be able to extend that to virtually every back-office function.
Finally, Barron’s notes that Europe is another exciting market for the company, as 54% of its revs come from the U.S. and 46% from Europe and other markets outside the U.S.
Xerox is now starting to run Cleveland's traffic-violations system: installing and monitoring cameras at intersections, exchanging information with DMVs about violators, fines process and recommending safety improvements and upgrades.
CEO Ursula Burns may be credited with the swing back into profitability and predictability. She orchestrated the $6.4 billion acquisition of Affiliated Computer Services.
As a result, XRX now derives about 50% of its revs from services, from 23% in 2009. Free cash flow is up from $1.2 billion in 2008, to $1.5 billion last year.
An analyst at Seligman Investments says that if XRX can hit a P/E of 12x, which is just below its five-year average of 13, then shares could jump to $14 - $15 in 2011. The figure is a 50% premium to today's trading price of $9.80. Forward P/E is right around 9.1x today, following the unusual surge in the stock price. Looking back at last Friday gives us a P/E of 8.5x.
The acquisition of ACS has added to XRXs sustainability, as revenues are recurring based on multi-year, signed contracts. Investors, especially value investors, like predictable revenue streams. One analyst sees free cash flow to jump to 14%, from 8 - 9% currently.
CEO Burns calls that company a "cash machine" that generated $2.2 billion of operating cash flow in 2009, and is on track to see $2.6 billion in operating cash flow this year. With the extra cash being used to pay off the ACS acquisition debt, XRXs board of directors may be looking to increase their dividend. The current dividend, an annualized rate of $0.17, yields about 1.7%. The company expects to have about $1 billion in cash for dividend, acquisitions, and stock buybacks by mid-2011.
COO Tom Blodget notes that, when ACS won a 10-year, $1.6 billion bid to manage California's Medicaid information systems, XRX was able to grab a contract to manage their printing services.
XRX still wants to stay in the printing business, which generates 46% of the company's revs. Lately, printing revs have increased 12% due to companies switching to color machines and multi-purpose machines. IDC notes that XRXs installed base accounts for about 50% of total page volume worldwide. XRX has a 49% share of the $7.8 billion managed-print services market, more than double what its nearest competitor can boast. IDC predicts this sector will grow 9.4% to $8.5 billion this year.
XRX has also been able to increase their presence in the business-processing outsourcing arena, a $32 billion per year market.
Burns notes that what they do is at the very core of non discretionary spending, in good or bad times. She said that they've adopted the motto "penetrate and radiate," meaning that once you show a customer what you can do in one area of info management, XRX will be able to extend that to virtually every back-office function.
Finally, Barron’s notes that Europe is another exciting market for the company, as 54% of its revs come from the U.S. and 46% from Europe and other markets outside the U.S.
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