Today Sound Advice Editor Gray Cardiff reiterates his Buy recommendation on one of his holdings that’s had a good run but is still undervalued.
“Xerox Corp. (XRX, NYSE) has climbed 33% this year. XRX has been transforming from a seller of printers and copiers to a company providing services on those machines as well as I.T. services in a variety of other areas. The revenue from services is more profitable and less cyclical, and it now accounts for half of XRX’s revenues.
“We expect growth to continue from services as well as technological advances in its color output equipment. Xerox has quietly been ushering in the next generation of new digital color-output equipment which should benefit 2014’s bottom line. For example, in June, XRX introduced its new Wide Format IJP 2000 to meet the growing demand for full-color large posters and banners. It completes jobs 40 times faster than comparable wide format systems using five print heads in one single pass with instantly drying ink.
“Meanwhile, XRX is continuing to buy back its own stock. After buying $700 million in 2011 and $1.1 billion in 2012, stock purchases will likely be within this range in 2013 and 2014.
“XRX is expected to earn $1.00 per share and at least $1.10 next year. At less than 10 times 2013 earnings, XRX is at a steep discount to the overall market’s P/E ratio of approximately 14. XRX is still dirt cheap. Morningstar’s fair value estimate of the stock is currently $11 per share, which is still only 11 times 2013 earnings.
However, even $11 is 28% above the current price. Buy up to $10.”
Gray Cardiff, Sound Advice, www.soundadvice-newsletter.com, 925-838-0522, 7/1/13