Based in Norwalk, Connecticut, Xerox Holdings (XRX) is a leading provider of workplace technology equipment, including copiers and printers, suggests Mark Skousen, editor of the specialty trading service, Home Run Trader.
It also sells digital services that leverage its software capabilities in network infrastructure, workflow automation, content management and graphic communication. A year ago, Xerox acquired CareAR, an enterprise augmented reality business. This market is expected to grow six-fold to $60 billion by 2023.
Xerox’s goal is to sell CareAR’s proprietary technology together in combination with its current offerings in robotics, artificial intelligence and analytics. However, the acquisition hasn’t lifted the company’s top or bottom line dramatically… yet. Both sales and earnings were largely flat in the third quarter.
However, we need to look forward, not back. I estimate that earnings per share at Xerox are likely to grow from $1.59 in 2021 to nearly $2.20 next year. Yet, the stock is trading as if sales and earnings are going to flatline forever.
Xerox currently sells for 54% of sales, 67% of book value and for nine times projected earnings for the next 12 months. The stock also yields 5.1%. That’s ultra-cheap, and Carl Icahn knows it.
Icahn is a multi-billionaire and the nation’s most successful shareholder activist. He has the risk capital, the legal prowess and the experience to force positive changes that benefit all shareholders. With every holding, Icahn is leaning on top brass.
Sometimes he recommends that management buy back shares or pay bigger dividends. At other times, he recommends spinning off unprofitable assets or selling the company entirely. In every case, he agitates in favor of shareholders. That makes Icahn — with his fearsome reputation — a powerful ally.
And he just purchased 972,000 Xerox shares, an investment of more than $17.3 million. I believe that Icahn will do whatever it takes to get the company’s shares to better reflect their underlying value. That makes now a good time to own the stock.
So, pick up Xerox Holdings at market, and place a sell stop at $15.50 for protection. If you prefer to play this one more aggressively, try the XRX April $23 calls, which last sold for $0.60 and expire on April 14.