On Monday, JPMorgan adjusted its outlook on Xerox (NASDAQ:XRX) stock, reducing the price target from $13.00 to $11.00, while keeping an Underweight rating. The firm cited ongoing challenges for Xerox in the print market, which are believed to be more significant than company management has projected.
Despite Xerox's shares trading at a multiple that is below the average for IT Hardware companies, the firm expects continued earnings pressure due to a slower recovery from disruptions earlier in the year.
The analyst from JPMorgan highlighted that Xerox's Project Reinvention, intended to protect margins, has not yet resulted in the expected margin improvement.
The company's shares are trading at 6.0x next-12-months earnings per share (EPS), which is lower than its historical range. However, the persistent earnings headwinds have led to the anticipation of further challenges in the upcoming earnings report.
JPMorgan forecasts a year-over-year revenue decline for Xerox in the third quarter of 2024, estimating a decrease of 3% to $1.6 billion, which falls short of the consensus of $1.64 billion. The projected EPS of $0.44 also misses the consensus estimate of $0.54. This lower revenue is expected to result in operating margins that are below initial expectations, at 6.6% versus the consensus of 7.4%.
For the fourth quarter, the firm anticipates a year-over-year revenue decline, contributing to a full-year revenue decrease of 6.6%. This is a downward revision from prior guidance, which forecasted a 5% to 6% drop. Consequently, the operating margin outlook for the full year has also been lowered to 6.1% from the previously expected 6.5%.
In light of these revised estimates, JPMorgan has set a new December 2025 price target for Xerox at $11, down from the previous target of $13, while reiterating the Underweight rating.
The analysis suggests that Xerox could potentially shift investor sentiment with growth in Digital & IT Services, especially following the acquisition of ITsavvy, but this would require stabilization in its core print business to boost investor confidence in sustained growth.
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