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. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

  1. 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 >>
  2. 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 >>
  3. 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 >>
  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. 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 >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... 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!