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Research firm SG Cowen upgraded shares of



Tuesday, saying new product sales should improve the company's revenue and margins, which could in turn lift its 2004-05 earnings.

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Analyst Steve Weber believes Xerox's earnings will rise 25% in 2004 and be "even better" in 2005, but he said he remains somewhat cautious on the company. Still, Weber raised his rating on Xerox to strong buy from outperform.

In 2005-05, Weber expects 9% revenue growth in equipment sales on a constant currency basis. Overall, the analyst expects 1% to 2% sales growth in 2004, to $15.9 billion, and 4% to 5% sales growth in 2005, to $16.6 billion.

Several new monochrome products should offset the decline in equipment prices in the next two to three years, Weber said. The analyst also believes the company will have less debt and operating margins of 10.7% next year. Weber predicted that operating margins in 2005 will increase by about 1.5 basis points from that level.

Weber expects Xerox to earn 80 cents a share in 2004 and $1.05 a share in 2005. On average, analysts expect earnings of 74 cents a share in 2004 and 98 cents a share in 2005.

"From a financial standpoint, Xerox seems out of the woods," Weber concluded. Shares of Xerox were rising 43 cents, or 4.5%, to $9.97.