Xerox Holdings Corporation
Xerox Holdings Corporation (NASDAQ: XRX) is a workplace technology company that creates and combines software and hardware for large and small companies. XRX's primary product and service lines include equipment, paper, other sales, maintenance agreements, service arrangements, rental, and other financial services. The business is active in the United States, Europe, Canada, and other countries.
- New Contract: PARC, a Xerox subsidiary, announced that the Defense Advanced Research Projects Agency (DARPA) had awarded it a USD 5.8 million contract to work with the University of California at Santa Barbara, the University of Rostock, and Patched Reality, an Augmented Reality company, on developing an Artificial Intelligence system that will guide users in complex physical tasks beyond their abilities. The technology will transform text and video-based guides into a computer-processable version, and use augmented reality to guide users through activities while also tracking task completion.
- Improvement in Revenues: The company's total revenues increased 3.32% to USD 5.26 billion during 9MFY21 (ended September 30, 2021) from USD 5.09 billion during 9MFY20, owing to positive currency effects and a recent partner dealer acquisition.
- Enhancement in Bottomline: The net income for 9MFY21 was USD 219 million, compared to USD 115 million in 9MFY20.
- Leveraged Balance Sheet: The company's cash and cash equivalents were USD 2.21 billion as of September 30, 2021, with a total debt of USD 4.32 billion.
- Customer Concentration Risk: Contracts with US and international governments and agencies generate significant revenue for XRX. As a result, changes in government funding, adverse political events, financial constraints, and other variables could wreak havoc on the company's bottom line.
- Reliance on Third Party Manufacturers: XRX outsources its production operations to third parties (Fuji Xerox Co., Ltd.). Failure of these third parties to create good manufacturing practices respond swiftly to changes in customer demand or purchase materials required for the manufacturing process could harm the company's profitability.
- FY21 Estimates: XRX decreased its FY21 revenue projection to USD 7.1 billion in actual currency (USD 7.0 billion in constant currency) as of October 26, 2021. It also confirmed that it expects free cash flow to be at least USD 500 million.
- Repurchase Guidance: After completing the targeted USD 500 million in buybacks for FY21, XRX approved an extra USD 500 million share repurchase program to be used opportunistically.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
XRX Daily Technical Chart (Source: REFINITIV)
XRX's stock price has surged 15.17% in the past month and is currently leaning towards the higher-band of the 52-week range of USD 17.59 to USD 26.96. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 66.77, indicating an overbought zone. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 20.42.
Considering the uptick in the stock price, decline in outlook, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 23.84, down 0.38%, as of January 14, 2022, at 10:17 AM ET.
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.