Company Reports

We are maintaining our $15 fair value estimate for no-moat Xerox after the firm kicked off fiscal 2024 with disappointing results on both the sales and profitability fronts. While management maintained its fiscal 2024 targets, implying a better-than-expected performance in the remaining three quarters of the year, we remain pessimistic about Xerox's long-term opportunity as its core business remains in secular decline. We reiterate our thesis that Xerox is an old dog trying to learn new tricks in an increasingly digitized landscape where printing is not as essential as it once was. The firm's shares sold off sharply after the earnings report, and we now view shares as fairly valued.

We are raising our fair value estimate for no-moat Xerox to $15 from $13 as we incorporate the firm’s improved profitability along with the time value of money following our valuation model roll. While near-term macro trends point to a better 2024 outlook than what the firm faced in 2023, we remain bearish on Xerox’s long-term opportunity. We reiterate our thesis that Xerox is an old dog trying to learn new tricks in an increasingly digitized landscape where printing is not as crucial as it once was. As a result, despite our fair value increase, we continue to view Xerox as trading at a premium and would encourage investors to avoid this no-moat name.

Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline. As a company, Xerox specializes in enterprise print equipment, largely multifunction printers (printers that can print, copy, and scan) ranging from A3 to A4 paper sizes. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic, forcing many corporations to rethink their office and, by association, print needs. In our view, eroding switching costs for Xerox is reflected in its declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is a key issue for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

We maintain our $13 fair value estimate for no-moat Xerox after the firm reported a mixed third quarter, with weaker-than-expected sales offset by improved profitability. We continue to have a weak outlook on Xerox’s long-term opportunity in a print landscape marred by secular decline. While we commend Xerox’s laser focus on profitability and operational efficiency, we’d like to see a similar level of attention given to a top line that continues to trend downward. With shares down more than 7% following the company’s earnings release, we view Xerox as fairly valued.

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.

We maintain our $13 fair value estimate for no-moat Xerox after the firm reported mixed first-quarter results, with revenue underperformance being offset by improved profitability. We believe the firm’s near-term prospects are also hampered by a turbulent macroeconomic environment. While the firm is slated to benefit from dissipating supply chain challenges, the overall softness in demand, sparked by a broad economic slowdown, will continue to weigh on Xerox’s sales going forward. To offset these revenue headwinds, Xerox has been diligent optimizing expenses, thereby improving its profitability. To this end, management announced that the firm will be donating Palo Alto Research Center, or PARC, to SRI International, a research nonprofit.

Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline. As a company, Xerox specializes in enterprise print equipment, largely multifunction printers (printers that can print, copy, and scan) ranging from A3 to A4 paper sizes. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic, forcing many corporations to rethink their office and, by association, print needs. In our view, eroding switching costs for Xerox is reflected in its declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

No-moat Xerox reported disappointing fourth-quarter results with guidance for the upcoming year below our expectations. The time value of money offset the weak financial results' impact on our fair value estimate following our valuation model roll. As a result, we are maintaining our $13 fair value estimate for the no-moat name. While a mixture of supply chain and macro headwinds continue to drive financial weakness for the firm in the near term, we are also bearing on Xerox's long-term prospects as the print industry continues to remain in secular decline. Despite shares being down 5% after the earnings release, we think that the market is overvaluing Xerox's business and would encourage investors to steer clear of this name.

We are reducing our fair value estimate for no-moat Xerox to $13 from $18 as the firm posted a disappointing third quarter with a massive reduction in free cash flow guidance for 2022. In addition to bleak near-term macroeconomic conditions, we remain concerned about the long-term structural decline in the printing landscape as consumers and companies wean off paper usage. With shares down almost 20% after earnings, we view the stock as fairly valued.

Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline. As a company, Xerox specializes in enterprise print equipment, largely multifunction printers (printers that can print, copy, and scan) ranging from A3 to A4 paper sizes. In 2021, equipment sales were 22% of revenue and post sales, a subsegment dependent on offering print supplies and equipment servicing, was 78%. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic, forcing many corporations to rethink their office and, by association, print needs. In our view, eroding switching costs for Xerox is reflected in its declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

We are resuming coverage of no-moat Xerox with an $18 fair value estimate. Shares appear fairly valued to us. Our long-term forecasts are unchanged, as we hold our view that Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline.

We are placing Xerox under review and expect to resume coverage in the near future.

No-moat Xerox started 2022 with revenue below our expectations as the legacy print company continued to suffer from digitalization trends that have accelerated because of the COVID-19 pandemic. While the top line suffered as supply chain issues led to a double-digit decline in equipment revenue, we are also bearish on Xerox’s long-term prospects as we anticipate the print industry to remain in secular decline. With the shares down more than 15%, we believe the market is valuing Xerox’s business accurately after the selloff.

No-moat Xerox reported disappointing fourth-quarter results below our expectations. The time value of money offset the weak financial results’ impact on our fair value following our valuation model roll. As a result, we are maintaining our $18 fair value estimate. While COVID-19-related trends drove the financial weakness this quarter, we are also bearish on Xerox’s long-term prospects as we anticipate the print industry to remain in secular decline. We believe the market is valuing Xerox’s business accurately, and we view the company’s shares as fairly valued.

Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline. As a company, Xerox specializes in enterprise print equipment, largely multifunction printers (printers that can print, copy, and scan) ranging from A3 to A4 paper sizes. In 2021, equipment sales were 22% of revenue and post sales, a subsegment dependent on offering print supplies and equipment servicing, was 78%. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic, forcing many corporations to rethink their office and, by association, print needs. In our view, eroding switching costs for Xerox is reflected in its declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

Xerox is the leader in print solutions, but we fear that this industry will remain in secular decline. As a company, Xerox specializes in enterprise print equipment, largely multifunction printers (printers that can print, copy and scan) ranging from A3 to A4 paper sizes. In 2020, equipment sales were 22% of revenue and post sales, a subsegment dependent on offering print supplies and equipment servicing, was 78%. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic, forcing many corporations to rethink their office and, by association, print needs. In our view, eroding switching costs for Xerox is reflected in their declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

No-moat Xerox reported disappointing third-quarter results and reduced its full-year revenue guidance due to lower printing demand as a return to offices was delayed. In addition to bleak near-term macroeconomic conditions, we remain concerned about the long-term structural decline in the printing landscape as consumers and companies wean off paper usage. As a result, we are reducing our fair value estimate to $18 from $22 for no-moat Xerox. Shares are down about 12% after earnings and appear fairly valued.

Xerox is an original equipment manufacturing and software company for print industry solutions. Specializing in enterprise print equipment, largely multifunction printers (printers that can print, copy and scan) ranging from A3 to A4 paper sizes, Xerox has been a leader in the print space. In 2020, equipment sales were 22% of revenue and post sales, a subsegment dependent on offering print supplies and equipment servicing, was 78%. We think the print industry is in a jam as the workplace becomes increasingly more digital. This trend was exacerbated by the COVID-19 pandemic that is forcing many corporations to rethink their office, and by association, print needs. In our view, eroding switching costs for Xerox is reflective in their declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.

Xerox finished its second quarter with both the top and bottom lines above our expectations as increased vaccinations and companies returning to offices brought tailwinds to the no-moat company. Zooming out, we see the company trying to pivot away from equipment-based revenue via organic and inorganic means. Coupled with this pivot, Xerox is aiming to improve its operating leverage via Project Own It. While we view the pivot and increased operational efficiency positively, we do not expect any new business ventures to offset the massive equipment declines, at least within our explicit five-year forecast. As a result, we are maintaining our $22 fair value estimate and view the shares as fairly valued.

Xerox is an original equipment manufacturing and software company for print industry solutions. Specializing in enterprise print equipment, largely multifunction printers (printers that can print, copy and scan) ranging from A3 to A4 paper sizes, Xerox has been a leader in the print space. In 2019, equipment sales were 23% of revenue and post sales, a subsegment dependent on offering print supplies and equipment servicing, was 77%. We think the print industry is in a jam as the workplace becomes increasingly more digital. In our view, eroding switching costs for Xerox is reflective in their declining equipment market share as Canon and HP grew share. We think this secular decline as well as its competitive positioning is problematic for Xerox because nearly all of Xerox’s offerings are dependent on one another. Only about low double digits of print supplies revenue are unbundled from other Xerox contracts, like equipment leases.