On Wednesday, Citi revised the price target for Xerox (NASDAQ:XRX) shares, bringing it down to $7.00 from the previous $10.50, while keeping a Sell rating on the stock. The adjustment follows Xerox's announcement of a missed third-quarter performance and a reduced forecast for fiscal year 2024. The company's efforts in restructuring, coupled with delays in product launches and issues within the salesforce, were cited as key factors impacting the quarter's results.
Management at Xerox has guided a 10% year-over-year revenue decline on a constant currency basis for fiscal year 2024. Despite the expected drop in revenue, they anticipate sales productivity improvements and the implementation of Reinvention savings to have a more significant impact by 2025.
Originally, Xerox aimed to increase adjusted operating income by $300 million above the 2023 level by 2026. However, due to the anticipated revenue decline, the company has adjusted this expectation, although it still projects growth in adjusted operating income and aims for a double-digit adjusted operating margin by 2026, supported by over $700 million in cumulative gross savings.
Citi's report highlighted the challenges Xerox faces in reaching a double-digit operating margin from its current position, given the multiple execution hurdles ahead. The updated model from Citi now includes the recent acquisition of IT Savvy, but the estimated earnings per share have been lowered to reflect the disappointing results and downgraded guidance.
The Sell rating stands as Citi sets the new price target of $7.00, driven by the lowered earnings estimates and a reduction in the multiple applied to the company's stock. This decision reflects the analyst's concerns over Xerox's ability to evolve its profitability amidst the current challenges.
In other recent news, Xerox Holdings Corporation reported third-quarter earnings and revenue that fell short of analyst expectations. The company disclosed adjusted earnings per share of $0.25, notably below the $0.51 consensus estimate. Revenue for the quarter was $1.53 billion, missing analyst projections of $1.63 billion and marking a 7.5% decline year over year.
In response to the underwhelming quarter, Xerox lowered its full-year 2024 guidance, now expecting revenue to decline around 10% in constant currency. Adjusted operating margin guidance was also reduced from at least 6.5% to approximately 5.0%. Free cash flow projections were revised down to a range of $450 million to $500 million.
Despite these setbacks, Xerox CEO Steve Bandrowczak expressed confidence in the company's ongoing Reinvention initiatives. He noted that these efforts are driving services signings momentum, improved decision-making, and a sustainably lower cost base. Furthermore, Xerox's pending acquisition of ITsavvy is expected to enhance the company's value proposition with clients and diversify its revenue sources.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Xerox's current financial situation and market performance. The company's market capitalization stands at $1.06 billion, reflecting its position in the Technology Hardware, Storage & Peripherals industry. Xerox's stock has experienced significant volatility, with a 15.77% decline in the past week and a 33.21% drop over the last six months. This aligns with Citi's bearish outlook and reduced price target.
Despite these challenges, InvestingPro Tips highlight that Xerox pays a significant dividend to shareholders, with a current dividend yield of 11.78%. The company has maintained dividend payments for 18 consecutive years, which may appeal to income-focused investors. However, it's worth noting that Xerox is trading near its 52-week low and has not been profitable over the last twelve months, with a negative P/E ratio of -0.94.
On a more positive note, analysts predict that Xerox will be profitable this year, and the company's Price to Book ratio stands at a low 0.45, potentially indicating undervaluation. These factors, along with 7 additional InvestingPro Tips, provide a more comprehensive view of Xerox's financial health and market position for investors considering the stock in light of Citi's downgrade.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.