Second Xerox Buy

By Travis Johnson, Stock Gumshoe, January 24, 2011

Since I noted in passing on Friday that I had a limit order in for some additional Xerox shares, I should tell you that the limit order triggered not long after I wrote to you — so I’ve beefed up my XRX position now and am pleased to have picked up some additional shares at these lower prices.

Xerox is a well-known company, though I think it continues to be misunderstood — this is now a services company much more than a hardware office equipment company, their document management services and the large variety of technical services businesses that they picked up with their ACS acquisition about a year ago provide a very solid, recurring revenue base and I think the margins are likely to improve from here (even though, given the bump from the acquisition and the snapback economic recovery in some of their businesses, revenue won’t climb anywhere near as fast in 2011 as it did in 2010).

The shares trade for only ten times next year’s earnings, for less than 1X sales and for only a small premium to book value (though that’s probably exaggerated due to the acquisition and “goodwill”), and I like what management is doing at this point. This, along with my investment in Corning, falls into the category of “cheap old underappreciated tech companies.”

Their earnings announcement should come out Wednesday morning before the market opens, so the price could certainly fluctuate wildly from here if that result isn’t in line with expectations — I have no particular insight into their quarter, but analysts are estimating that this will be their best quarter of the past year, with earnings growing about 30% over a year ago and sales up almost 50% (that’s largely from the ACS acquisition, I assume), so expectations are fairly high and a disappointment would hurt.

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