Will Xerox (XRX) Disappoint Q4 Earnings This Season? - Analyst Blog
Xerox Corporation (XRX) is scheduled to report its fourth-quarter 2014 results before the opening bell on Jan 30. In the last reported quarter, earnings beat the Zacks Consensus Estimate by a penny. Let’s see how things are shaping up for this announcement.
Factors to Consider
Xerox recently announced its decision to divest the Information Technology Outsourcing (ITO) business to Atos - a leader in digital services provider - for $1.05 billion. The transaction also includes an additional consideration of $50 million on closing, which is expected in the first half of 2015.
The initial proceeds of the divestiture will be used to boost share buybacks and acquisition spending. Also with this divestiture, Xerox intends to refocus on its document outsourcing businesses and other high-margin business services to offset the decline of the document printing business.
Xerox continues to grow globally through successful acquisitions. Xerox is also set to acquire Seattle-based firm Intrepid Learning Solutions to expand its learning portfolio. Post acquisition, Intrepid’s cloud-based learning technology business will be excluded from Xerox and marketed under the Intrepid brand. Together, both companies will sign a partnership alliance to benefit their clients with Intrepid’s technological expertise and Xerox’s e-learning, consulting, administration and classroom training programs.
However, a significant portion of the company’s revenues are generated from operations outside the United States. Additionally, the company maintains significant operations and acquires or manufactures many of its products outside the United States.
Also, fluctuations in foreign currency exchange rates affect the company’s net investment in foreign subsidiaries and may cause instability in cash flows related to foreign denominated transactions.
Earnings Whispers
Our proven model does not conclusively show that Xerox will beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is pegged at 0.00%. This is because both the Most Accurate estimate and Zacks Consensus Estimate currently stand at 28 cents. This indicates likely in-line earnings.
Zacks Rank: Xerox has a Zacks Rank #4 (Sell).
Note that, we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the imminent future.
Arch Capital Group Ltd. (ACGL), earnings ESP of +1.92% and a Zacks Rank #1
Century Aluminum Co. (CENX), earnings ESP of +7.69% and a Zacks Rank #2.
Alnylam Pharmaceuticals, Inc. (ALNY), earnings ESP of +4.55% and a Zacks Rank #2
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