Xerox Holdings Stock is a Value Play

Document management solutions and systems provider Xerox Holdings Corporation NYSE: XRX stock has fallen back towards pandemic lows with its surprising disappointment for Q1 fiscal 2022 earnings report. The Company was expected to make $0.13 per share profits but ended up posting a (-$0.12) per share loss, missing by (-$0.25). The surprise loss was the first in two decades driven by headwinds including inflation pressures, supply chain disruption with Omicron-driven factory closings in Asia, and a slow return to the office for clients. The Company still expects workers to return to the office by mid to late 2022, which is the Company’s bread and butter. The supply chain problems have led to higher inflationary pressures, which the Company has little resolution for since most contracts have a fixed price. Price hikes to accommodate inflation will take time to realize as contracts renew. Its hard to believe but the Company is a technology innovator. It first company to develop a prototype of the mouse aka graphic user interface and the point and click system which was the inspiration behind  Mac OS and Windows. Unfortunately, they would create then drop the ball as other companies took the ideas to market and commercialized them. However, the Company sees improving page volumes and record backlog, but rising costs need to be capped. Shares trade at 14.67X forward earnings and carries a 5.84% dividend yield. Prudent investors seeking both a value and turnaround play going into the latter half of the second quarter can watch for opportunistic pullback levels in shares of Xerox.

Q1 Fiscal 2022 Earnings Release

On April 21, 2021, Xerox released its fiscal first-quarter fiscal 2022 results for the quarter ending March 2022. The Company reported adjusted earnings-per-share (EPS) loss of (-$0.12) excluding non-recurring items versus consensus analyst estimates for a profit of $0.13 per share, a (-$0.25) per share miss. Revenues fell (-2.5%) year-over-year (YoY) to $1.67 billion beating consensus analyst expectations of $1.63 billion.

Fiscal Full-Year 2022 Guidance

Xerox reaffirmed fiscal full-year 2022 revenue guidance of $7.1 billion versus $7.03 billion consensus analyst estimates. The Company expects to generate free cash flow of at least $400 million, of which 50% will be returned to shareholders.

Conference Call Takeaways

CEO Visentin started off by acknowledging the humanitarian cross in Ukraine and nothing that the Company halted shipments to Russia and provided emergency cash grants to employees in the Ukraine. Its exposure to the Eurasian region is low single digits. He highlighted the headwinds, “The operating environment was once again, challenged in Q1 and will remain fluid in Q2. At the beginning of Q1, the Omicron variant resulted in office closures in our largest markets, affecting page volumes in January and February. Supply chains are still disrupted by COVID-related factory closures in parts of Asia. Inflationary pressure is building across our cost base, including cost of goods sold, labor and logistics. At this point, we continue to expect supply chain conditions to ease beginning in the second half of the year, albeit at a slower pace than originally anticipated.” However, he underscored that return to office trends are improving as Omicron recedes which is leading to higher page volumes. He expects the return to office trend to build its momentum in the second half of the year as things return to normal. The silver lining for the quarter was a record total backlog up 21% to $422 million as equipment demand remained strong outpacing the supply. IT services grew double digits organically helped in part by its acquisition of Canadian IT provider Powerland. The Company underestimated the magnitude of supply chain and inflationary pressures going into the quarter, but still feels a recovery is in the works and reaffirmed its full-year guidance.

XRX Opportunistic Price Levels

Using the rifle charts on the weekly and daily frames provides a precision view of the landscape for XRX stock. The weekly rifle chart peaked on its coil attempt near the $21.25 Fibonacci (fib) level. Shares collapsed through its weekly 5-period moving average (MA) at $19.16 to form an inverse pup breakdown followed by a falling 15-period MA at $20.28. The weekly lower Bollinger Bands (BBs) were hit at $16.24. The weekly stochastic crossed back down from a mini pup attempt to fall back  under the 30-band. The weekly market structure low (MSL) buy can trigger on a breakout above the $20.12 level. The daily rifle chart has an inverse pup breakdown with the 5-period MA falling at $18.46 and daily lower BBs at $16.74. The daily 15-period MA resistance is falling at $19.01, 50-period MA resistance sits at $19.72 and 200-period MA resistance sits at $21.11. The sharp drop on earnings results caused a quick reaction on the daily stochastic on the recoil. The daily stochastic is attempting a mini pup through the 30-band for a make or break set-up. Prudent investors can watch for opportunistic pullback levels at the $16.36 fib, $15.49 fib, $14.41 fib, $12.89 fib, $11.52 fib, $10.08 fib, and the $8.04 fib level. Upside trajectories range from the $21.25 fib level up towards the $26.92 fib level.