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Xerox Stock Rebuilds; Q1 EPS Rise Expected, But Not Better Revenue

Take your eye off iconic copier maker Xerox ( XRX ) for too long — heck, Xerox stock had done little more than fall since December 2014 — and you would have missed its run-up to Tuesday’s eight-month high at 11.39, up 34% since touching a nearly three-year low in January at 8.48. Xerox stock closed Friday at 11.16, flat for the session. Credit Suisse analyst Kulbinder Garcha doesn’t see much upside potential, giving Xerox a 12-month price target of 11 and a neutral rating in a research note issued Friday. He does see more first-quarter earnings in Xerox, modeling 1 cent more adjusted EPS than Wall Street’s 23-cent consensus, which would be up 10% from the year-earlier quarter. Xerox is scheduled to release Q1 earnings before Monday’s open. But Garcha sees slightly smaller sales than the $4.24 billion consensus of analysts polled by Thomson Reuters. That Q1 consensus would be a 5.1% decline from 2015’s Q1 sales and Xerox’s 17th consecutive quarter of shrinking year-on-year revenue, albeit slower shrinkage than the 8% decline in Q4 and 10% contraction in Q3. The rise in Xerox stock may be tied to anticipation over its imminent split into two companies: the legacy copier/printer/office machine business and the business-process outsourcing (BPO) spinoff. Based on $18 billion in 2015 sales, down 8% from 2014, the business-machine side would wind up with about $11 billion a year in sales, and the outsourcing spinoff about $7 billion, Xerox CEO Ursula Burns said when she announced the split on Jan. 29, concurrent with the Q4 earnings release. Inspired by activist investor Carl Icahn, Burns said the breakup would unlock value in both companies. Icahn would get three seats on the new BPO board, while Xerox would get six. BPO sales, grouped currently as services under Xerox, is a “show me story,” Credit Suisse’s Garcha said. “Management is trying to transition the business away from low-margin to more value-added business,” he wrote in a research note. “However, we think management has to show consistent improvement and deliver on results to regain investor confidence.” Garcha anticipates a Q1 decline of 5.4% to $2.4 billion in services revenue. As for the so-called “document technology” core hardware, software and document management businesses, Garcha estimates that about $1.6 billion of Xerox’s annual cost of goods sold are “yen-denominated,” coming from the Fuji Xerox joint venture (75% owned by Fujifilm ( FUJIY )). With the yen up about 9% year to date, foreign exchange “will impact margins,” but less than was earlier expected, Garcha said. For Q1, Garcha forecasts document tech segment revenue fell 12% to $1.6 billion. Not all of Xerox outsourcing will be part of the BPO spinoff. Document outsourcing, which fell 2% to $852 million in Q4 revenue, will stay with the larger portion of the split, a Xerox spokesman told IBD. Effective April 1, Xerox borrowed $1 billion unsecured from a consortium of seven banks to be repaid within a year or upon execution of the spinoff, whichever comes first. Xerox says the spinoff should be complete before year-end. With a market cap of $11.3 billion, Xerox is the fourth-largest member of IBD’s Computer-Hardware/Peripherals industry group, following Canon ( CAJ ), the newly reorganized HP Inc. ( HPQ ), and Fujifilm. Xerox carries a middling 66 IBD Compositing Rating. Its formidable BPO rivals, Cognizant Technology Solutions ( CTSH ) and Infosys ( INFY ) rate better, with CRs of 75 and 80, respectively.

Super Micro Computer Stock Dives, Breakout Fails After Profit Warning

Highly rated small cap Super Micro Computer ( SMCI ) lowered its third-quarter estimates after the close Thursday and then watched its stock crash Friday. Super Micro stock plunged nearly 19% in heavy afternoon trading in the  stock market today , near 27. The stock had made a breakout at 33.89 from a cup-with-handle base, but that breakout has now failed. Scheduled to announce Q3 earnings after the close April 28, Super Micro founder and CEO Charles Liang said late Thursday in a preannouncement that the quarter ended March 31 turned out “weaker than forecast due to weaker demand with some large customers and the channel than we anticipated. January and February were particularly soft, while March showed improved momentum. Storage and data center continued to grow.” Except for the reference to March, there was “little detail on going-forward expectations,” Needham analyst Richard Kugele said in a Thursday research note. “We see great risk to the company’s goal of 20%-plus annual revenue growth and expect the stock will return to the penalty box, at least until further clarity is provided on the April 28 call.” IBD’s Take: Super Micro had been hot, but a breakout failed. How does the stock stack up? Find out at IBD Stock Checkup Kugele, though, said he still likes the company in the long term and that it’s outpacing the broader server/storage market. He reiterated his buy rating and 36 price target on Super Micro. Super Micro said Q3 revenue will come in at $530 million to $533 million instead of $530 million to $580 million. It now sees non-GAAP EPS of 33 cents to 35 cents vs. earlier guidance of 43 cents to 53 cents. Wall Street consensus had been 49 cents minus items, up 4% from the year-earlier quarter, and sales of $557 million, up 18%, Kugele said. Thomson Reuters on Friday cited consensus of six analysts on non-GAAP EPS of 46 cents and of seven analysts on revenue of $552 million. The preannouncement offered no guidance. Thomson Reuters put consensus on the current fiscal Q4 EPS minus items at 66 cents on revenue of $650 million vs. 57 cents on $574 million a year earlier. With an IBD Composite Rating of 98, Super Micro Computer ranks the best among all members of IBD’s Computer-Hardware/Peripherals industry group. But it’s also one of the smallest, with a market cap of $1.35 billion. The largest, Canon ( CAJ ), with a $32.68 billion market cap, carries a 37 CR, followed by newly reorganized HP Inc. ( HPQ ), with a $21.9 7 billion market value and a 47 CR. Canon stock was down a fraction intradayFriday, while HP stock was up a fraction. Image provided by Shutterstock .

PC Market Slump Drags On HP Ahead Of Fiscal Q1 Report

Personal computer and printer maker HP Inc. ( HPQ ) continues to slump on diminished prospects for the PC market in 2016. HP stock on Thursday fell to its lowest level since it split from the former Hewlett-Packard on Nov. 1. HP shares were down 3% near 9 in afternoon trading on the stock market today . Earlier in the session, the stock fell as low as 8.92. HP had climbed as high as 14.82 post-split. RBC Capital Markets analyst Amit Daryanani on Thursday maintained his sector perform rating on HP stock but cut his price target to 11 from 13. He also lowered his estimates for HP’s fiscal 2016 “to reflect weaker market fundamentals.” “Recent PC-centric data points suggest to us that not just demand is soft, but there is also a continued PC inventory overhang, especially in Europe, that could negatively impact results in first half 2016,” Daryanani said in a report. “Similarly, we think both the print hardware and supplies businesses could have muted outlooks for fiscal 2016, based on Canon ( CAJ ) results/outlook and (foreign-exchange) movement.” HP is scheduled to report fiscal-first-quarter results after the market close on Feb. 24. HP executives have said the PC market will be challenging for several quarters but had expressed optimism for the second half of 2016. They had hoped Microsoft ’s ( MSFT ) Windows 10 operating system would help drive PC sales, particularly with enterprise customers, later in the year. “HP should see challenging growth dynamics through fiscal 2016 on foreign-currency translation headwinds, competitive industry pricing, and PC channel inventory issues,” Daryanani said. On Wednesday, Sterne Agee CRT analyst Rob Cihra reiterated his neutral rating on HP stock but cut his price target to 11 from 14. “While global PC demand remains weak and supply/demand negative starting calendar 2016, we actually believe HP’s PC inventories are in better shape than most, an ironic product of its weaker share in China,” Cihra said in a report. “But we still see a particularly weak start to the year.” Cihra is forecasting the PC market will unit declines of about 5% year over year in 2016, but HP could offset the industry decline through market share gains as the top-tier players continue to consolidate. The cash-cow printing business looks even weaker than PCs this year, Cihra said. On Tuesday, Pacific Crest Securities analyst Brent Bracelin maintained his sector weight rating on HP stock but lowered his estimates for HP for this year and next based on “eroding PC and printing fundamentals.” RELATED: Apple Bucks Declining PC Sales Trend HP Inc. Q4 Earnings Exposes Dark Side Of PC business .