Analyst Note| Julie Bhusal Sharma |
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.