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Xerox Insiders Snapping Up Shares (XRX)
Is Xerox (NYSE:XRX) worth more than Wall Street thinks? Xerox insiders seem to think so. The company's senior executives have been buying the down-and-out stock right near it's 52-week low.
During the stock's downturn, management has tossed around some big bucks.
- Anne Mulcahy, Xerox's CEO, also purchased 10,000 shares, spending roughly $172,000.
- Lawrence Zimmerman, the company's chief financial officer bought 10,000 shares for roughly $172,000.
- Ursula Burns, the company's president, purchased 5,000 shares at an estimated cost of $86,000.
Note that Mulcahy also sits on other boards, including Target (NYSE:TGT) and Citigroup (NYSE:C). Burns sits on the board at both American Express (NYSE:AXP) and Boston Scientific (NYSE:BSX).
What piqued my interest about this activity is that it is reportedly the first time insiders have purchased stock in the open market in about two years! Therefore, I thought this run of insider buying interest deserved more than just a passing glance. (For more on how insiders can help you make better trades, read When Insiders Buy, Should Investors Join Them?.)
What Do The Insiders Know?
The obvious assumption is that the above purchases signify that those executives think better times are ahead. In fact, despite all of the competitive forces it's been facing, and generally lower corporate spending on office-related supplies, the company continues to be show some signs of improvement.
In late July the company released its second-quarter earnings, and they were pretty decent. The company's bottom line rose by about 2% over last year, coming in at 28 cents per share. On the revenue line, the company showed some growth as well. Total revenue was up about 6% from last year to $4.21 billion, just ahead of the $4.2 billion the Street expected. Increased sales of higher-margin color printers, scanners, fax machines and copiers are the root of the improvements.
There's more. In conjunction with the earnings announcement, management also raised is 2007 earnings guidance from $1.12-to-$1.16 per share to $1.16-to-$1.18 per share. Going forward, the company is banking that many of the 28 new products its launched so far this year will help drive its revenue and earnings lines.
The Potential Pitfalls
Although the company is showing steady signs of improvement, there remain a number of potential pitfalls that could stymie future growth.
Companies such as Hewlett-Packard (NYSE:HPQ), which also makes printers and other office-related gadgetry, aren't sitting still. In fact, HP has a number of new products, and is constantly making inroads with regards to new potential distribution channels. In short, the competition is expected to remain stiff.
Also, potential investors should keep in mind that the demand for office-related equipment appears to be waning. As evidence, just check out what's cooking at companies such as Office Depot (NYSE:ODP) and Staples (Nasdaq:SPLS). Believe me, its pretty ugly out there, and analysts aren't predicting a big turnaround anytime soon.
Finally, what about 2008 earnings? As of right now, analysts are forecasting the company will earn $1.31 per share, implying a roughly 11% expected rate of growth. That's decent, but is it doable? Frankly, I'm not so sure given the potential risks at play with this company. I'm worried that some sell side analysts might agree with me and tighten their estimates in the coming months. That may have an impact on the stock as well.
The Bottom Line
I think the senior executives who recently purchased stock are indeed voicing their longer-term confidence in the shares. However, I personally would want to see a little more evidence that earnings will continue to accelerate and that the macro environment is improving before following their lead. That said, insiders really only buy shares for one reason - they think the stock's going up in price. I think it's worth taking a deep look at this company as a result.
For further insight, see Keeping An Eye On The Activities Of Insiders And Institutions.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
During the stock's downturn, management has tossed around some big bucks.
- Anne Mulcahy, Xerox's CEO, also purchased 10,000 shares, spending roughly $172,000.
- Lawrence Zimmerman, the company's chief financial officer bought 10,000 shares for roughly $172,000.
- Ursula Burns, the company's president, purchased 5,000 shares at an estimated cost of $86,000.
Note that Mulcahy also sits on other boards, including Target (NYSE:TGT) and Citigroup (NYSE:C). Burns sits on the board at both American Express (NYSE:AXP) and Boston Scientific (NYSE:BSX).
What piqued my interest about this activity is that it is reportedly the first time insiders have purchased stock in the open market in about two years! Therefore, I thought this run of insider buying interest deserved more than just a passing glance. (For more on how insiders can help you make better trades, read When Insiders Buy, Should Investors Join Them?.)
What Do The Insiders Know?
The obvious assumption is that the above purchases signify that those executives think better times are ahead. In fact, despite all of the competitive forces it's been facing, and generally lower corporate spending on office-related supplies, the company continues to be show some signs of improvement.
In late July the company released its second-quarter earnings, and they were pretty decent. The company's bottom line rose by about 2% over last year, coming in at 28 cents per share. On the revenue line, the company showed some growth as well. Total revenue was up about 6% from last year to $4.21 billion, just ahead of the $4.2 billion the Street expected. Increased sales of higher-margin color printers, scanners, fax machines and copiers are the root of the improvements.
The Potential Pitfalls
Although the company is showing steady signs of improvement, there remain a number of potential pitfalls that could stymie future growth.
Companies such as Hewlett-Packard (NYSE:HPQ), which also makes printers and other office-related gadgetry, aren't sitting still. In fact, HP has a number of new products, and is constantly making inroads with regards to new potential distribution channels. In short, the competition is expected to remain stiff.
Also, potential investors should keep in mind that the demand for office-related equipment appears to be waning. As evidence, just check out what's cooking at companies such as Office Depot (NYSE:ODP) and Staples (Nasdaq:SPLS). Believe me, its pretty ugly out there, and analysts aren't predicting a big turnaround anytime soon.
Finally, what about 2008 earnings? As of right now, analysts are forecasting the company will earn $1.31 per share, implying a roughly 11% expected rate of growth. That's decent, but is it doable? Frankly, I'm not so sure given the potential risks at play with this company. I'm worried that some sell side analysts might agree with me and tighten their estimates in the coming months. That may have an impact on the stock as well.
The Bottom Line
I think the senior executives who recently purchased stock are indeed voicing their longer-term confidence in the shares. However, I personally would want to see a little more evidence that earnings will continue to accelerate and that the macro environment is improving before following their lead. That said, insiders really only buy shares for one reason - they think the stock's going up in price. I think it's worth taking a deep look at this company as a result.
For further insight, see Keeping An Eye On The Activities Of Insiders And Institutions.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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