A week ago, Xerox Holdings Corporation (NYSE:XRX) came out with a strong set of second-quarter numbers that could potentially lead to a re-rate of the stock. The company beat both earnings and revenue forecasts, with revenue of US$1.8b, some 4.2% above estimates, and statutory earnings per share (EPS) coming in at US$0.46, 79% ahead of expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Following last week's earnings report, Xerox Holdings' seven analysts are forecasting 2021 revenues to be US$7.27b, approximately in line with the last 12 months. Statutory earnings per share are forecast to dive 65% to US$0.65 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$7.20b and earnings per share (EPS) of US$0.70 in 2021. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$20.00, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Xerox Holdings at US$24.00 per share, while the most bearish prices it at US$17.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One thing stands out from these estimates, which is that Xerox Holdings is forecast to grow faster in the future than it has in the past, with revenues expected to display 2.0% annualised growth until the end of 2021. If achieved, this would be a much better result than the 4.8% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 4.5% per year. Although Xerox Holdings' revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Xerox Holdings. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Xerox Holdings' revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Xerox Holdings going out to 2023, and you can see them free on our platform here..
We don't want to rain on the parade too much, but we did also find 1 warning sign for Xerox Holdings that you need to be mindful of.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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