Xerox Earnings: Mixed Results With Flat Sales Offset by a Focus on Profitability

We maintain our $13 fair value estimate for no-moat Xerox after the firm reported a mixed first quarter, with below-estimate sales offset by improved operating margins. While the near-term macro environment continues to be tough, we believe some of the more acute macro pressures stand to dissipate over the coming quarters as a frosty IT spending environment shows signs of thawing. From a long-term perspective, we reiterate our view of Xerox as a large fish in a shrinking pond. While we commend management’s focus on cost optimization, we don’t believe these savings can offset the secular decline Xerox’s products face. With shares trading 5% up after Xerox reported results, we believe investors are overly optimistic about the firm’s future and view Xerox’s shares as overvalued.