Xerox Corp Valuation – June 2016 $XRX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Xerox Corp (XRX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Xerox Corporation is engaged in imaging, business process, analytics, automation and user-centric insights. The Company’s segments include Services, Document Technology and Other. The Company’s Services segment comprises two types of service offerings: Business Process Outsourcing (BPO) and Document Outsourcing (DO). Its DO offers services, such as managed print services (MPS), which include workflow automation and centralized print services (CPS). Its BPO business includes services that support enterprises through multi-industry offerings, such as customer care, transaction processing, finance and accounting, and human resources, as well as industry-focused offerings in areas, such as healthcare, transportation, financial services, retail and telecommunications. Its Document Technology segment includes the sale of products and supplies, as well as the associated technical service and financing of those products. Its Other segment includes paper sales in its market countries.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of XRX – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,434,036,102 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 11.00% Fail
6. Moderate PEmg Ratio PEmg < 20 11.73 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.02 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.10 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

XRX value chart June 2016

EPSmg $0.78
MG Growth Estimate 1.56%
MG Value $9.12
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $11.37
MG Value based on 0% Growth $6.66
Market Implied Growth Rate 1.62%
Current Price $9.20
% of Intrinsic Value 100.93%

Xerox Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.71 in 2012 to an estimated $0.78 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 1.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Xerox Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

XRX charts June 2016

Net Current Asset Value (NCAV) -$8.81
Graham Number $13.89
PEmg 11.73
Current Ratio 1.11
PB Ratio 1.02
Current Dividend $0.29
Dividend Yield 3.13%
Number of Consecutive Years of Dividend Growth 4


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $6,808,000,000
Total Current Liabilities $6,146,000,000
Long-Term Debt $5,359,000,000
Total Assets $24,857,000,000
Intangible Assets $10,498,000,000
Total Liabilities $15,731,000,000
Shares Outstanding (Diluted Average) 1,013,033,000

Earnings Per Share History

Next Fiscal Year Estimate $0.99
Dec2015 $0.42
Dec2014 $0.81
Dec2013 $0.91
Dec2012 $0.88
Dec2011 $0.90
Dec2010 $0.43
Dec2009 $0.55
Dec2008 $0.26
Dec2007 $1.19
Dec2006 $1.22
Dec2005 $0.94
Dec2004 $0.86
Dec2003 $0.36
Dec2002 $0.02
Dec2001 -$0.12
Dec2000 -$0.44
Dec1999 $1.96
Dec1998 $0.52
Dec1997 $2.02
Dec1996 $1.66

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.78
Dec2015 $0.72
Dec2014 $0.84
Dec2013 $0.81
Dec2012 $0.71
Dec2011 $0.64
Dec2010 $0.58
Dec2009 $0.72
Dec2008 $0.83
Dec2007 $1.05
Dec2006 $0.88
Dec2005 $0.61
Dec2004 $0.34
Dec2003 $0.17
Dec2002 $0.18
Dec2001 $0.44
Dec2000 $0.86

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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