Xerox Limps Into Earnings (NYSE: XRX)

With the S&P 500 index up nearly 50% from the lows of Q1 and plenty of stocks trading at all-time highs, not many are still languishing not only near their 52-week lows but multi-year lows. However, for investors of Xerox (NYSE: XRX) that’s the unpleasant fact they’ve been dealing with in recent months.

After rallying more than 100% in the twelve months prior to February of this year, shares lost 65% of their value in just five weeks. A short-lived 30% bounce off those lows left investors unimpressed and as the company gets ready to release their latest earnings report tomorrow, shares are down 22% from even that bounce and still 60% off their February high.

So what’s gone so wrong for the former printing and photocopying giant?

Glory Days

Many on Wall Street will say that the company never recovered from the dot com bubble and the aftermath of its bursting. A 1,200% rally in the years leading up to the summer of 1999 had Xerox at the forefront of that generation of tech leaders. The fact that Friday’s closing price mirrored the closing prices of sessions as far back as December 2000 says a lot about their fortunes since then.

As the current generation of tech companies one again leads from the front, Xerox has been unable to remain innovative or competitive and its revenues have been consistently declining over the past decade with no sign of a reversal. It’s been death by a thousand cuts as margins have shrunk, profits have shriveled up and investors have walked away. For example, the company reported revenue of $10.7 billion in 2016. In 2017, that dropped to $10.2 billion while in 2018 it came in at $9.8 billion. Last year, it just about broke the $9 billion mark and hopes are not high for 2020’s number being able to stay above it either.

On The Ropes

Several spin-offs and sales of various business lines in recent years have also failed to stop the rot, even with activist shareholder Carl Ichan pulling many of the strings. Late last year management swung for the fences with a hostile takeover attempt of HP (NYSE: HPQ) that was fended off and eventually dropped with the onset of COVID-19.

Shares had jumped 30% when the news broke last November and since the deal was taken off the table they’ve been unable to persuade investors to believe in the turnaround potential. The company can’t seem to catch a break and Wall Street has all but given up on this one-time behemoth.

Even a price-to-earnings ratio of 2.9 and a 6.4% dividend yield isn’t enough to convince the most patient of investors to buy and hold, perhaps because the latter is at risk of being cut with tomorrow’s release. Were this to happen, it could be the straw that breaks the camel's back and sends shares down to multi-decade lows. For context, shares closed last Friday’s session at $15.65. They were also trading at that price one year after Ronald Reagan took office in 1982.

Glass Half Full

The contrarians and optimists among us might point out that much of the downside has been baked into the share price and the potential for an upside shock in tomorrow’s report makes a punt worthwhile. Shares are trading, for better or for worse, right above a level of support that’s been in play for decades. They’ve bounced off this line in the 80s, 90s, 00s and 10s. With that kind of record, it makes sense that they’d bounce off it again at some point in the 20s.

However, there are many more promising options available for those with an appetite for risk than a 114 year old dinosaur that’s just noticed an asteroid in the sky.