The task that was 2005 is finished, and it's time for copier king Xerox
Wall Street Wisdom:
- General consensus. For such a large and well-known firm, Xerox doesn't get a whole lot of coverage on Wall Street. Only 10 analysts cover the firm, and seven of them label it with the unhelpful hold rating. The other three say buy.
- Revenues. Why the lack of enthusiasm? Slow growth could be part of it. Analysts expect sales to grow a bare 2% when Xerox reports tomorrow.
- Earnings. Profits, on the other hand, are believed to have grown strongly in Q4 -- up 33% over the year-ago period to $0.32.
Margin watch:
My fellow Fool, Tom Taulli, recently highlighted Xerox's "margin issues." Pressured by competitors such as Canon
|
Marg. |
6/04 |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
|---|---|---|---|---|---|---|
|
Gross |
41.2% |
42.0% |
40.6% |
40.8% |
40.2% |
40.1% |
|
Op. |
9.8% |
10.2% |
10.0% |
10.4% |
9.9% |
9.6% |
|
Net |
5.1% |
5.4% |
5.5% |
5.2% |
6.6% |
5.9% |
Valuation metrics:
Xerox sports a price-to-free cash flow ratio of 10, which at first glance looks much better than the firm's P/E of 16. The problem is that Xerox also carries a boatload of debt, enough to jack its enterprise value-to-free cash flow ratio back up to 14. With 11% growth projected over the next five years, the price isn't super-expensive, but it's not yet a bargain.
Fool contributor Rich Smith does not own shares of any company named above.