Home > Stock Analysis

Xerox Buyback Compensates For Weak Earnings

By Glenn Curtis

Tickers in this Article: XRX, CAJ, HPQ

Copy machine maker Xerox (NYSE:XRX) posted second-quarter earnings of $215 million, or 24 cents per share. That's shy of the $266 million or 28 cents a share it put up in the comparable period a year ago. However, not counting a restructuring charge its EPS came in at 29 cents a share, which was a nickel north of expectations.

Get Free Stock Analysis By Email

But even beyond its Q2 beat there are a couple of other things I find attractive about the company as well.

Xerox Prints a Pretty Picture
According to its Q2 press release, Xerox expects third-quarter 2008 earnings of 28-30 cents per share and full-year earnings of $1.26-1.30 per share. The numbers it offered up are in line with current Street expectations; analysts are calling for the company to earn 29 cents per share in the September quarter and $1.25 for the full year. Based upon the latest quarter, I think we could see the full year estimate get ratcheted upward which could drive the stock.

I was also impressed that management had the confidence to go out on a limb with only about half a year under its belt. Given that the shares can currently be had for about $13, this is intriguing. (Explore the controversies surrounding companies commenting on their own forward looking expectations in Can Earnings Guidance Accurately Predict The Future?)

Buyback Speaks Volumes
Xerox also repurchased $377 million shares, and authorized an additional $1 billion in share repurchase, bringing the total available to $1.7 billion. The languishing share price has placed management and the board under some pretty hefty pressure to perform. So, they could have spent that money on development or something to spur near-term revenue. The fact that the company is buying back shares instead tells us that the board is confident the shares are header higher.

There is also a chance the '08 analyst forecasts could be increased thanks to the newly announced repurchase plan. That could attract some eyeballs, particularly among the analyst community. (To learn what buybacks mean to stockholders, read A Breakdown Of Stock Buybacks.)

The Flip Side
One negative is that, although the shares are trading near their 52-week low, insiders haven't been buying. Why is that? That concerns me a bit, and its one of the things that gives me some pause about this story.

Also, Canon (NYSE:CAJ) and Hewlett Packard (NYSE:HPQ) aren't sitting still. Both companies are doing their part to capture the attention of both consumers and the analyst community. (To learn how to interpret insider transactions, check out Delving Into Insider Investments.)

Bottom Line
I think Xerox's Q2 results were decent, and I'm pumped up by its share repurchase program. As a bonus, the stock pays a small dividend, and the current yield is 1.2%.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

MORE STOCK ANALYSIS