Xerox's Earnings to Rise, But Still Depressed

Xerox(XRX Quote), the document-equipment company whose stock has fallen three times as much as the S&P 500 this year, isn't quickly recovering from a profit slump. Just on Friday, it lowered its first-quarter earnings expectations.

Xerox said EPS will be 3 cents to 5 cents a share, compared with previous guidance of 16 cents to 20 cents.

Before the announcement, TheStreet.com Ratings' quantitative model had assigned Xerox a "risk grade" of D on a scale from A-plus to E-minus. The model, programmed to conduct an objective analysis of a company's valuation metrics, financial situation, analyst consensus expectations of growth as well as the volatility of its stock price, has Xerox's "overall grade" as a C, equivalent to a "hold" recommendation.

As can be seen in the accompanying table, the consensus among analysts is that Xerox's earnings per share, excluding extraordinary items, will recover from a depressed 26 cents in fiscal 2008 to 95 cents this year and $1.03 in 2010. But that will still leave the company less profitable than in fiscal 2006, when it netted $1.22.

The stock's meager multiple of 5.5 times this year's estimated earnings per share reflects a lack of confidence by investors in Xerox's ability to maintain earnings growth momentum. The shares have plunged 46% so far in 2009, compared with a decline of 15% for the benchmark S&P 500.

Chairman and CEO Anne Mulcahy on Friday pledged to lower the firm's debt level, which at the end of 2008 stood at a burdensome $9 billion, close to 1.5 times the firm's equity of $6.2 billion.