Xerox ( XRX), 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.

Xerox blamed the slump in the global economy for its diminished prospects. It said 6 cents of the reduction in first-quarter net will be the result of Xerox's share of Fuji Xerox's restructuring and lower-than-expected profit at Fuji Xerox. It added that the balance of the reduction will result from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings.

Xerox's total revenue in January and February declined 18%, including a 5-point currency impact, largely due to lower sales of equipment and printer-based supplies.

The company said it's on track to deliver $250 million in savings this year from previous restructuring actions, and has identified an additional $300 million in cost-and-expense reductions that will flow through to earnings and cash generation.

Xerox Financial Facs
Company XEROX
Ticker XRX
Industry Office Electronics
TheStreet.com Ratings Reward Grade B-
TheStreet.com Ratings Risk Grade D
TheStreet.com Ratings Overall Grade C
TheStreet.com Ratings Recommendation Hold
Recent Price 5.19
Latest Fisc. Yr. Revenue ($Mil.) 17,608.0
Market Cap ($Mil.) 4,488.2
Total Assets ($Mil.) 22,447.0
Total Debt ($Mil.) 9,032.0
Earnings Before Interest & Taxes ($MiL.) 1,727.0
Cash Flow from Operations ($Mil.) 939.0
EPS - Latest Avail. Fiscal Yr. 0.26
EPS - Curr. Year Consensus 0.95
EPS - Next Yr. Consensus 1.03
Price/Book Ratio 0.7x
Ret'n on Equity (%) 3.7
P/E - Current Year 5.5x
P/E - Next Year 5.0x
Dividend Yield (%) 3.97
Source: TheStreet.com Ratings. (Data as of 3/13/2009.)
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Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.