Xerox Is More Than Making Copies

TheStreet.com

NEW YORK (TheStreet) -- "Let me Xerox that article for you." The words slipped off my tongue from a bygone era, when a friend told me he enjoyed reading an article that was sitting on my kitchen counter when he last visited.

What I was saying was, "I'll step into my office a make you a copy of it" but force of habit prevailed. That reminded me the word "Xerox" was, for decades, synonymous with document copiers, fax machines and even printers. Mercy me, how times have changed.

Today Xerox still has its brand name, but it has widened its menu of products and services by leaps and bounds. I visited the company's eye-pleasing Web site to get a feel for how wide that menu really is.

Founded in 1906 and employing about 140,000 people as of 2012, XRX has invested in its intrinsic value through an innovative corporate culture that emphasizes research and development. This is partly reflected in its cache of over 10,700 active patents and the following corporate self-description:

For more than a half a century, Xerox has been a leader in document technology and services. We continue to build on this heritage of innovation. Through our acquisition of Affiliated Computer Services, we now are the world's leading enterprise for business process and document management, offering global services from claims reimbursement and automated toll transaction to customer care centers and HR benefits management.


The "new Xerox" has focused its resources on innovation, service and empowering its customers to focus on what matters most to them. It interacts with its diversified client base using a partnering attitude that connotes that XRX wins only if its customers win, too.

Ursula M. Burns is chairman and chief executive of Xerox, which she joined in 1980 as a mechanical engineering summer intern. Burns was named CEO in July 2009, just prior to XRX making the largest acquisition in its history, the $6.4 billion purchase of Affiliated Computer Services.

This big step gave the company its presence in the $500 billion business services market and extended the company's reach into diverse areas of business process and information technology outsourcing.

On May 20, 2010, Burns became chairman of the company, which serves clients in over 160 countries. She is well-connected and highly regarded. She's not only the chairman of Xerox' board, she's also a board director of American Express and energy giant Exxon Mobil .

This may qualify her as one of corporate America's most powerful and influential business leaders. As of May 6, Burns is the insider with the largest amount of XRX shares (525,082 to be exact). The company's President of Corporate Operations and Executive V.P., James Firestone, as Feb.28, 2013, owned 464,451 shares of XRX stock. The company's leadership can empathize with its shareholders.

As of the end of 2012 the top institutional investor was mutual fund company Dodge & Cox (with 9.4% of the outstanding shares). The second-largest institutional investor, as of March 31, 2013, was State Street Corporation with ownership of 6.25% of the outstanding stock of XRX.


With sales approaching $23 billion, XRX has emerged as the world's leading enterprise for document management and "business process," a term it uses for its outsourcing and IT services. "Thousands of companies rely on us to help improve their processes, manage client operations, and focus on their core business," the company's Web site proudly proclaims.

As its market cap approaches $11 billion and its year-over-year (as of March 31) quarterly EPS growth reached 10%, I get the sense Xerox is toeing the line and staying in synch with the guiding philosophy of Chairman and CEO Burns.

"As I've progressed in my career, I've come to appreciate -- and really value -- the other attributes that define a company's success beyond the P&L: great leadership, long-term financial strength, ethical business practices, evolving business strategies, sound governance, powerful brands, values-based decision-making," she says, a quote prominently displayed on XRX's Web site.

Let's look at a five-year chart to get a better picture of how her leadership and corporate philosophy has worked out for XRX and its stock.

XRX Chart
XRX data by YCharts

After a vigorous rebound from the financial crash of 2008-2009, shares of XRX were in correction mode through most of 2011 and 2012. After hitting its 52-week low of $6.10 in late November 2012, the share price followed the Ebitda (TTM) earnings and quarterly revenue per share to a 52-week high of $9.38 on April 11, 2013, a remarkable 54% increase from that November low.

Of concern to investors is the ratio of long-term debt (as of March 31 it stood at $8.54 billion) compared to its total cash of around $993 million. This means for every dollar of cash in its coffers XRX had over $8.50 worth of debt on its books.

When it comes to its dividend yield, currently at 2.58%, it has sufficient earnings and resources so the payout ratio as of the end of the first quarter 2013 was a modest 20%. This makes it financially feasible for an increase in the dividend before the end of the year.

Shares are selling for slightly less than book value with a price-to-earnings-to growth (five-year expected PEG) ratio of only 1.23. Based on the analysts' projections for earnings in its fiscal year ending Dec. 31, 2014, the forward PE ratio is a low 7.56.

Before investing, scour its Web site and all the analysts' projections and estimates of EPS and revenue for all of 2013. At present analysts are anticipating year-over-year EPS increase of around 6.8% and revenue in 2013 to be similar to 2012.

With Burns at the helm and its proactive corporate business model, Xerox has a chance of surprising to the upside in the second half of 2013. A great deal will have to do with the financial condition of its customers in the U.S. and globally.

Xerox is no longer a company or a brand connected to the notion of document copying. Now that it's the leading name in "business process" as well as document management it will be exciting to see how it evolves in the challenging economic environment it finds itself in today.

Burns and her competent team will, I hope, be increasing sales, reducing and refinancing its debt to mitigate an important investor concern, and keeping its shareholders as happy as possible. Go Xerox and Happy 107th birthday!

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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