Based in Norwalk, Connecticut, Xerox Holdings Corporation (XRX - Get Rating) develops and sells document management systems and solutions in the United States, Europe, Canada, and internationally. The company offers digital printing services, graphic communications and production solutions, and sells paper products. It also operates a network of centers that digitize and automate paper and digital workflows.

XRX has been experiencing a sharp decline in demand for its printers and photocopiers, with more people shunning paper and more businesses digitizing their work. Moreover, COVID-19  lockdown regimes have restricted XRX’s  ability to sell, install and service its equipment. Indeed, extended work-from-home trends could also affect the company’s sales in the upcoming months.

The company’s weak fundamentals, poor financial performance and uncertainty about its potential to rebound based on several factors have caused our proprietary rating system rate XRX as “SELL.”

Here is how our proprietary POWR Ratings system evaluates XRX:

Trade Grade: D

XRX is currently trading lower than its 50-day moving average of $22.57, but higher than its 200-day moving average of $18.93, which does not indicate a robust uptrend. Moreover, XRX has lost 5.9% over the past month, indicating  short-term bearishness.

XRX’s revenue has decreased 18.9% year-over-year to $1.77 billion in the third quarter ended September 30, 2020. Its gross margin declined 320 basis points from the year-ago value to 36.8%, while its adjusted EPS declined 40% year-over-year to $0.48. The company reported a net loss of $56.84 million over this period. The company’s cash flow from operating activities declined 70.2% from the prior-year quarter to $106 million over this period.

In December, XRX announced the appointment of Xavier Heiss as chief financial officer. His deep expertise in finance and well-established relationships across the business could help renew XRX’s growth and speed up business transformation.

Buy & Hold Grade: D

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , XRX is poorly positioned. The stock is currently trading 45.5% below its 52-week high of $38.69, which it hit on December 2. This can be attributed to the massive shift to remote working conditions and other COVID-19 related headwinds, which have resulted in a significant decline in sales of digital printers.

The company’s revenue has declined at a CAGR of 9.8% over the past three years, while its EBITDA decreased at a CAGR of 12.7% over this period. Also, XRX’s EPS has declined at a CAGR of 8% over the past three years.

Peer Grade: D

XRX is currently ranked #43 of 52 stocks in the Technology – Hardware industry. Other popular stocks in this industry are Synopsys, Inc. (SNPS - Get Rating), Cadence Design Systems, Inc. (CDNS - Get Rating) and Garmin Ltd. (GRMN - Get Rating).

All these industry leaders have successfully beaten XRX over the past year. SNPS, CDNS, and GRMN gained 76.1%, 83.7%, and 23.6%, respectively, over the past year. This compares to XRX’s negative returns over this period.

Industry Rank: B

The Technology – Hardware industry is ranked #30 of 123 StockNews.com industries. The companies in this industry manufacture personal computers, cameras, printers, monitors, keyboards, mice, and webcams, as well as ATMs, self-service kiosks, point-of-sale terminals, and biometric readers.

While the pandemic has wreaked havoc on most industries, it has helped the tech companies thrive. These companies are capitalizing on the current work-from-home and online education trends, and could emerge stronger, more resilient, and more innovative.

Overall POWR Rating: D (SELL)

XRX is rated a “Sell” due to stiff competition and weak financials, as determined by the four components of our overall POWR Rating.

Bottom Line

Remote working conditions have put immense pressure on the XRX stock. The pandemic has stymied its business and led to a severe decline fall in demand for its products because people do not need high-end office printers and associated supplies when they are not in office.

A consensus revenue estimate of $1.65 billion for the quarter ending March 30, 2021 indicates an 11.2% decline year-over-year. XRX’s  inability to maintain a strong financial position amid growing competition and the headwinds it has been experiencing owing to the pandemic do not make it a safe turnaround stock for 2021.

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XRX shares fell $0.45 (-2.17%) in after-hours trading Monday. Year-to-date, XRX has declined -10.52%, versus a 2.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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