On Friday, Citi initiated coverage on Xerox (NASDAQ:XRX) Holdings Corporation (NASDAQ:XRX) with a Sell rating, setting a price target of $11.00. The firm pointed to the ongoing major restructuring efforts at Xerox as a key challenge. According to Citi, the company's shift towards the specialized Digital/IT services market may require substantial time and investment, potentially hindering the improvement of operating income.
Xerox, known for its printer hardware and services, has undergone significant restructuring to navigate the pandemic's impacts. The company's strategy of continued restructuring, coupled with a pivot to a competitive and operationally expensive Services market, has made it difficult for investors to maintain confidence in Xerox's ability to enhance margins to double digits.
The coverage comes at a time when Xerox is attempting to reposition itself within a fragmented market. Despite being a trusted provider, the company's transition involves several execution points that must be addressed successfully. Citi's commentary suggests that the market will need to see tangible results from Xerox's efforts before gaining confidence in the company's stock.
Xerox's current approach involves a delicate balance of cutting costs while also investing in and focusing on a new market segment. This strategy is seen as a significant undertaking that will test the company's ability to deliver on its financial objectives.
The new price target of $11.00 reflects Citi's cautious stance on Xerox's future performance, as the company embarks on its transformative journey in a post-pandemic business landscape. The firm underscores that Xerox is now considered a "Show Me" stock, indicating that investors are looking for demonstrable progress before committing to the stock.
In other recent news, Xerox Holdings Corporation has reported a 12.4% decline in revenue for the first quarter of 2024, totaling $1.5 billion. This decrease is largely due to structural changes, including a 15% reduction in workforce, which led to a significant 26% year-over-year decline in equipment sales. Despite these challenges, Xerox remains steadfast in its reinvention strategy, aiming to improve its adjusted operating income by $300 million above 2023 levels within three years.
In a recent development, Xerox expanded its credit line from $300 million to $425 million, in partnership with Citibank and other lenders, aiming to bolster its financial flexibility. The company anticipates generating at least $600 million in free cash flow in 2024, backed by a reduction in finance receivable balances. Xerox also targets adjusted operating income margins of at least 7.5% for 2024.
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