Xerox Shares Not Expected To Enjoy Much Lift, In Barclays' View

Barclays maintains its Underweight rating on Xerox Corp (NYSE: XRX), saying that the shares may be pressured as "red flags waving" in the services segment, which in turn would prevent further upside beyond Friday's 4 percent rise.

Xerox reported quarterly revenue of $4.4 billion, in line with Barclays' estimate, while EPS of $0.30 was above the brokerage's forecast of $0.24, driven by slightly higher gross margin and a much lower tax rate.

However, signings remain challenged, as it fell 9 percent to $2.9 billion and renewal rates dropped to 82 percent, down from 89 percent in the prior quarter and flat with last year.

Further total contract value (TCV) on new signings was down 56 percent versus the same quarter last year. These trends could hurt future growth in revenues.

"We think a fair amount of investors involved are looking for more relative upside potential in the services business over time. We are skeptical. Renewal rates fell, and TCV is not heading in the right direction. That's not good and could limit sustained appreciation potential in the stock," analyst Mark Moskowitz wrote in a note.

Related Link: Xerox Said To Reject Proposed Merger With RR Donnelly -DJ

Meanwhile, Xerox reiterated its full-year guidance for EPS and cash flow. But, the company guided for September quarter non-GAAP EPS of $0.26–$0.28, above Barclays forecast of $0.24 but below consensus of $0.28 at the midpoint.

"Pre-split activity can be intriguing. Some companies may focus on reviving revenue growth or cost optimization, while others may target both. With Xerox, we think the company is focused more on margin improvements, which could hinder long-term revenue growth," Moskowitz added.

However, the analyst raised his 2016 EPS estimate to $1.12 from $0.99 and price target on the stock to $11 from $10.

At time of writing, shares of Xerox were down 2.82 percent at $10.01.

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