What Do These Factors Say About Xerox?

With shares of Xerox (NYSE:XRX) trading around $8, is XRX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Xerox provides a portfolio of business process and information technology outsourcing support as well as document technology and solutions. Through the company’s business process and information technology outsourcing, it offers claims reimbursement and electronic toll transactions, management of human resource benefits, customer care centers, and operation of a company’s technology infrastructure. Xerox is well-positioned to take advantage of business expansions occurring all over the world.

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Head on over to the next page to explore the technical landscape of Xerox’s stock…

T = Technicals on the Stock Chart are Strong

Xerox stock has seen a strong decline from its highs established during the technology boom. Currently, the stock is recovering from the Financial Crisis so it has been trying to gain some ground. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Xerox is trading above its rising key averages which signal bullish price action in the near-term.

XRX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Xerox options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Xerox Options

33.7%

86%

90%

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What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of today, there is an average demand from call buyers or sellers and average demand from put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Xerox’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Xerox look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-3.7%

-4.55%

0%

0%

Revenue Growth (Y-O-Y)

-0.69%

-2.87%

-1.3%

0.7%

Earnings Reaction

2.24%

-5.12%

-6.85%

0.12%

Xerox has seen mostly declining earnings and revenue growth over the last four quarters. From these figures, the markets have taken Xerox’s latest earnings reports very positively.

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P = Excellent Relative Performance Versus Peers and Sector

How has Xerox stock done relative to its peers, Canon (NYSE:CAJ), Accenture (NYSE:ACN), Hewlett-Packard (NYSE:HPQ), and sector?

Xerox

Canon

Accenture

Hewlett-Packard

Sector

Year-to-Date Return

19.82%

-12.43%

11.42%

46.67%

10.87%

Xerox has been one of the relative performance leaders of its sector.

Conclusion

Xerox is an established company in an area that is essential to the daily operations of any business across the globe. The stock is currently seeing strong positive momentum from a well-regarded earnings report by investors. Relative to its peers and sector, Xerox has been one of the strongest performers. Look for Xerox to continue to OUTPERFORM.

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