Xerox: More Than Copies

08/13/2004 12:00 am EST

Focus:

Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

We recently profiled 15 leading women in the investment field (if you missed that report, click here). In this article, Jocelyn Drake, analyst withSchaeffer's Investment Research, looks at Anne Mulcahy, one of the very few women who head a major firm-in this case, Xerox. 

"It's quite an illustrious honor and accomplishment to be included among the Fortune 500 companies and to find a woman in the driver's seat of one of these powerhouses is to be in even more rarified air. (Only eight of these companies are run by women. Below is an in-depth look at one of these securities using Expectational Analysis, our unique methodology that analyzes technical and fundamental factors within the context of market sentiment- to peek into where these equities may be headed in the future.While Xerox (XRX NYSE) is best known for its copiers, the firm also produces printers, scanners, fax machines, document management software, and copier supplies. In 2003, XRX had roughly 61,100 employees and brought in revenue of $15.7 billion. In August 2001, Anne M. Mulcahy was named CEO and was made chairman of the board in January 2002. Mulcahy had worked her way up within the company, starting as a field sales representative in 1976.

"Xerox recently reported earnings of $208 million, or 21 cents per share, which more than doubled its nine-cent profit for the same period a year ago. The company cited strong sales of its new color products and services. On a down note, revenue slipped 2% due to a drop in sales of older light-lens technology and weakness in Latin America. However, the firm managed to soothe any lingering fears by raising its full-year earnings projection to 80-84 cents per share from its earlier guidance of 67-72 cents per share. Historically, the company remains strong from a fundamental perspective. According to Zacks, the firm has met or surpassed the consensus earnings estimate for the past five quarters.

"Looking at the stock's technical performance, the shares finally reached a bottom at 4.20 in October 2002. Over the next 16 months, the security rallied a whopping 270% to a February 2004 peak at 15.54. Since February, the stock has traded sideways between support at the 12.50 level and resistance at 15. This consolidation phase for XRX has carried it into long-term support at its ascending ten-month moving average at the 13.50 level. The security has not suffered a monthly close below this trendline since October 2002. Despite weakness in 2001 and 2002, the shares still managed to outperform the SPX. In fact, the equity's monthly relative-strength measure has rallied higher since December 2000.

"Surprisingly, XRX's technical and fundamental strength has been met with overwhelming skepticism on behalf of investors. Roughly 48.7 million XRX shares have been sold short, accounting for more than 6% of the total float. At the stock's average daily trading volume, it would take almost 14 days to buy back all these bearish bets. And while short interest is certainly small compared to the last couple of years the current accumulation of shorts could easily fuel a significant rally in the stock should short sellers begin to feel squeezed by the equity. Wall Street has even been reluctant to jump on this security. Zacks reports that only six analysts currently follow XRX. Of those six, five rate the stock a 'hold'. Not only does this leave room for upgrades, but any additional coverage by the Street could also add some lift to the shares. XRX is definitely a stock worthy of being on any trader's watch list. A break through overhead resistance at the 15 level could spur a serious round of short covering and upgrades that could send the security shooting higher."

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