EUR 850.00 For Business Accounts Only

Morningstar | Significant Investment Needed for Xerox to Remain Competitive; Lowering Our FVE to $27.50. See Updated Analyst Note from 30 Aug 2018

After taking a fresh look at Xerox and adjusting our fiscal 2018 projections as well as our outlook throughout the next five years, we are lowering the no-moat company’s fair value estimate to $27.50 per share from $32. We believe revenue will turn out slightly worse in fiscal 2018 than what we had previously expected and forecast research and development increasing each year in the next five years given Xerox’s aspiration to enter new product areas like digital packaging, and effects of the Fuji deal fallout. While we don’t doubt Xerox’s belief that digital print for packaging will be a desirable space, we are skeptical of Xerox’s conviction that a switch from analog printing to digital printing in commercial packaging will prompt a change of vendor, especially given digital and analog print’s ability to work in tandem. We believe, instead, that massive analog packaging companies will partner with digital print experts like Xerox--or even look to acquire the likes of Xerox. This will cause Xerox to benefit from only a portion of the digital print market and require significant R&D to adapt to the difficulties of package printing. We also believe difficulties lie ahead due to Xerox’s issues on the Fuji front. Xerox’s agreement in the Fuji Xerox partnership won’t be dissolved until 2021, though Xerox will seek to rely on Fuji less for supplies in the meantime. We don’t think this will affect Xerox’s costs of goods sold significantly, but rather, hurt research synergies that previously existed between the two companies. Ultimately, we realize Xerox is still in a limbo after its Fuji debacle, and thus stalled its strategic transformation program, hence our adamancy in Xerox’s high uncertainty.