In recent years, Xerox (NYSE:XRX), traditionally known as a purveyor of copiers, printers and other related services, has been aggressively expanding its business process outsourcing activities. Given the growth that rivals have found in the space, Xerox appears to be on the right track. But for this year, trends look anemic.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

First Quarter Recap
Revenues advanced 1% to $5.5 billion and product sales fell 5% to $1.6 billion, or nearly 30% of total sales. Service revenue, which includes outsourcing and rental sources, rose 4% to account for the vast majority of the top line at more than 68%. Finance income made up the remaining small amount and fell 9%. Xerox also breaks its revenues up between services and technology. It reported solid service (outsourcing activities related to business processing, documents and information technology) growth of 9.2% to $2.8 billion but a 6.3% decline in technology (the sale of products and supplies revenue to $2.3 billion. Profits in each segment declined slightly).

Total pre-tax income fell 11% to $313 million. A drop in tax expenses tempered the net income decline a bit as the bottom line fell 4% to $269 million. However, share buybacks helped keep earnings per diluted share flat at 19 cents.

SEE: A Breakdown Of Stock Buybacks

Outlook and Valuation
For the full year, Xerox expects to report between 97 cents and $1.03 in earnings per share. Backing out restructuring items, it expects a range of $1.12 and $1.18 per share. It is guiding operating cash flow in a range of $2 billion to $2.3 billion. Analysts currently project a very modest sales growth of 1.6% and total sales of nearly $23 billion.

With a current share price of $7.88, Xerox trades at a forward P/E of only about 6.43.

The Bottom Line
For all of 2011, Xerox generated an operating cash flow of about $2 billion and an impressive free cash flow level of $1.5 billion, or just over $1 per share. This suggests that, along with sales, free cash flow growth will be minimal this year.

Xerox is pursuing a business process by outsourcing growth that firms including Accenture (NYSE:ACN), Infosys (Nasdaq:INFY) and Wipro (NYSE:WIT) have successfully capitalized on. The payroll processing duopoly of Paychex (Nasdaq:PAYX) and Automatic Data Processing (Nasdaq:ADP) have also been looking to human resources BPO for growth. This suggests that Xerox is taking the right approach, but the stock will likely continue to trade at a low level until more tangible signs of both sales and profit growth appear.

SEE: 5 Must-Have Metrics For Value Investors

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  2. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  3. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  4. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  5. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  6. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!