On Thursday, Citi maintained a Sell rating on shares of Xerox (NASDAQ:XRX), reducing the price target to $10.50 from $11.00. The firm cited Xerox's failure to meet expectations and a lowered forecast for fiscal year 2024 as key reasons for the adjustment. The company's restructuring efforts were noted to have adversely affected its quarterly performance.
Xerox has reported a miss in their recent estimates and has revised their forecast for the fiscal year 2024 downwards. The company is anticipating growth in the second half of the year; however, the expected cost savings are not projected to contribute significantly to improvements until 2025.
Despite the challenges, Xerox has reaffirmed its ambitious three-year goals for operating income and free cash flow, supported by over $700 million in identified cost-saving initiatives.
The cost reduction measures are part of a broader strategy that includes realigning core print products and channels, with a shift towards more indirect versus direct sales and an aim to increase market share in A4 printing. Moreover, Xerox plans to expand its Digital and IT Services, aiming to double its contribution from approximately 10% to around 20% by 2026/2027.
Citi's stance on Xerox remains cautious, emphasizing the difficulty in gaining confidence in the company's ability to effectively manage ongoing restructuring and cost-cutting while also pivoting towards a competitive and operationally intensive Services market. The firm also highlights the need for Xerox to demonstrate its capability to improve margins into the double digits amidst these changes.
In summary, Citi's updated view on Xerox reflects skepticism about the company's near-term prospects, given the multiple execution points required for the company to meet its stated objectives. The revised price target of $10.50 reflects the firm's current assessment of the stock's value.
In other recent news, Xerox Holdings Corporation has experienced a series of significant developments. The company reported a 12.4% decline in revenue during the first quarter of 2024, totaling $1.5 billion, attributed to a 15% workforce reduction and a 26% year-over-year drop in equipment sales.
Despite these challenges, Xerox remains committed to its reinvention strategy, targeting an improvement in adjusted operating income by $300 million above 2023 levels within three years.
Xerox has also increased its credit line from $300 million to $425 million, in partnership with Citibank and other lenders, aiming to improve financial flexibility. The company projects generating at least $600 million in free cash flow in 2024, backed by a reduction in finance receivable balances, and targets adjusted operating income margins of at least 7.5% for 2024.
JPMorgan (NYSE:JPM) recently reduced its price target for Xerox from $17 to $16, maintaining an Underweight rating due to concerns about the company's growth amidst various challenges. Meanwhile, Citi initiated coverage on Xerox with a Sell rating and a price target of $11.00, citing the ongoing restructuring and transition to the specialized Digital/IT services market as key challenges. These are just a few of the recent developments for Xerox.
InvestingPro Insights
As Xerox (NASDAQ:XRX) navigates through its restructuring process, the company's financial metrics and market performance offer a mixed picture. According to real-time data from InvestingPro, Xerox's market cap stands at a modest $1.33 billion, with a notably low Price/Book ratio of 0.57 as of the last twelve months ending Q1 2023.
This suggests that the company's stock is trading below its book value, which could be attractive to value investors. The company boasts a high dividend yield of 8.49%, signaling a commitment to returning value to shareholders, despite recent operational challenges.
InvestingPro Tips indicate that Xerox is expected to grow its net income this year and is trading at a low Price/Book multiple, which could be a sign of undervaluation. Furthermore, the company has maintained dividend payments for 18 consecutive years, underscoring its historical commitment to shareholders.
For readers interested in a deeper analysis, there are 11 additional InvestingPro Tips available for Xerox, which can offer further guidance on whether this stock fits into your investment strategy. Access these insights and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
While Citi maintains a cautious stance, the InvestingPro data and tips provide a broader context for potential investors. The high dividend yield and the company's valuation metrics could be seen as positive signs, particularly for those looking for income-generating investments or opportunities in the Technology Hardware, Storage & Peripherals industry. As Xerox continues its efforts to pivot and streamline its operations, these financial indicators will be key to monitoring its progress and potential for recovery.
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