Xerox Stock is a Turnaround Play

Document management solutions and systems provide Xerox Holdings Corporation NYSE: XRX stock has been in compression for several months. While the Company suffered during the pandemic, it is a reopening play as it expects to see workers return to the office in droves starting in Q3 2021, thanks to the acceleration of COVID 19 vaccinations. With the reopening comes more volume as schools reopen and onsite customers continue to invest in technology. The Company has accelerated its digital transformation as automation and bots continue to complete increasingly complex transactions. The Company is the U.S. leader in print management services growing its market share to 21%. Xerox also continues to innovate in areas of 3D printing, industrial internet of things (IoT), and cleantech. For example, the Company partnered with VicTrack to launch Eloque, a joint venture using tiny fiber optic sensors attached to a bridge to determine structural health based on real-time data. Infrastructure operators can utilize the technology to prioritize bridge repairs. The Company has been an innovation turbine being the initial creator of the mouse, which lead to the Apple Macintosh NASDAQ: AAPL and ultimately inspired the Window operating system NASDAQ: MSFT. Prudent investors seeking to gain exposure on this innovative technology player can watch for opportunistic pullbacks to scale into a position.

Q2 FY 2021 Earnings Release

On July 27, 2021, Xerox released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $0.47 excluding non-recurring items versus consensus analyst estimates for a profit of $0.37 per share, a $0.10 per share beat. Revenues rose 22.4% year-over-year (YoY) to $1.79 billion beating consensus analyst expectations of $1.72 billion. The adjusted operating margin rose 280 basis points YoY to 7%. The Company generated $214 million of cash flow, up $180 million YoY and $198 million in free cash flow, up $183 million YoY. Xerox CEO John Visentin commented, “We saw growing demand for our products and services in the second quarter. Increased equipment sales and print volumes in many regions are consistent with a continuing, gradual return to the office and give us the confidence to reaffirm our revenue and cash flow guidance for the year. Over the past 18 months, our team has successfully managed through an unprecedented level of uncertainty to continue delivering value to our clients. This focus will continue in the second half of the year as we manage through global supply chain disruption while investing for sustainable, long-term growth.”

Conference Call Takeaways

CEO Visentin set the tone, “Increased equipment sales and print volumes are consistent with the continuing gradual return to the office and give us the confidence to reaffirm our revenue and free cash flow guidance for the year. In the second quarter, we increased investments in our operations and targeted growth areas while generating greater free cash flow.” Supply chain disruption is expected to persist, “Increased demand and material shortages impacted the supply chain of certain products to our customers this quarter, creating a backlog of equipment, including IT product that's nearly doubled that of last year's. Despite these constraints, we delivered strong equipment sales results in the second quarter. We expected supply chain challenges to persist through at least the third quarter and possibly through the year. “ It’s Project One is on track to deliver $375 million in cost savings in 2021. Digital transformation is apparent, “Robotic process automation and analytics were our initial areas of focus for digital transformation. Bots are now managing increasingly more complex transactions across the enterprise in every business and function completing 4 million transactions per quarter up 300% year-over-year. We have expanded our investment focus to include augmented reality and artificial intelligence. Utilizing these technologies internally will improve the service experience for customers, make us more efficient and create additional opportunities for Project Own It related savings in the future. The gradual return of workers to the office, combined with strong demand for our products and services, positions Xerox to return to growth this year. The correlation between greater levels of in-office work and increased page volumes continued in the second quarter as page volumes increase slightly compared to the first quarter.”

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 has been in compression as the trading channel has gotten tighter evidenced by the contracting Bollinger Bands. The weekly rifle chart formed a market structure high (MSH) sell trigger on the breakdown under $24.17 as it chops around the $23.81 Fibonacci (fib) level. The weekly market structure low (MSL) buy triggered above $20.54. The daily rifle chart has a make-or-break setup. The bullish scenario would be a pup breakout confirmed by a stochastic cross-up as shares spike through the $24.17 MSH sell trigger as a short squeeze ensues towards the daily upper BBs at $25.39. The bearish scenario would come by way of a stochastic mini inverse pup forming on the 5-period MA crossover down through the 15-period MA towards the daily lower BBs at $21.86. Prudent investors can watch for opportunistic pullback levels at the $23.04, $22.60, $21.98 fib, $20.52 daily MSL trigger, $19.91 fib, and the $19.40 sticky 5s lower range. Upside trajectories range from the $29.74 fib up to the $41.25 fib.