We have been following Xerox Corporation (XRX) since the middle of January largely because David Einhorn (Greenlight Capital) had purchased 17M shares of the company in Q4 2011. We were attracted to the company because it had purchased Affiliated Computer Services in 2010 and we liked how Xerox was transitioning its revenue exposure from hardware towards IT and Business Process Operations Services.
We were especially pleased with ourselves in that we decided to watch for a perfect pitch with this company because if we had purchased shares on January 18 (when Greenlight revealed its Xerox purchase), we would be down 22% in the nine months that we heard about Greenlight green-lighting its re-entry into Xerox. Then again, Xerox is down 13% based on Einhorn’s initial cost of $7.61/share.
We agree with Einhorn that there is value in Xerox because we have decided to begin formally covering and publishing our analysis and evaluations of the company and Einhorn has reinforced his conviction in the company through the additional purchase of 9M shares during 2012. Although it has seen soft performance this year, we like that it is at a 30% discount to book value.
Due to the weak economic environment of the eurozone, Xerox continues to report sour results. We think it is becoming a trend on Xerox’s part to meet consensus adjusted estimates and to reduce forward guidance and also to announce “non-recurring restructuring charges” that are “excluded from adjusted EPS guidance”.
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