Michael Price Liks JCP, Contest Winner Xerox

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Michael Price Liks JCP, Contest Winner Xerox

Michael Price is now presenting the winner.

Last contest winner Bridgepoint Education, the stock is flat. The stock seeks to be cheap. Price was bullish on Goldman Sachs Inc (NYSE:GS), but that might have changed. The big banks need to change themselves before the government does. Michael Price just bought some J.C. Penney Company, Inc. (NYSE:JCP) this morning, and is not concerned by ‘short-term hiccups.’ They have great management and directors.  They have fantastic experience in the industry.

They will suffer, but even the assets they own is worth more than the current market cap. Low interest rates should keep the market up, and the past few weeks have given another buying opportunity. He would rather buy when the market is down than when market is high.

Winner this year is Shantanu Agrawal with his thesis on Xerox Corporation (NYSE:XRX). Looking at a sum of parts basis it appears to be undervalued.

Corporate debt is mostly covered by value of excess cash, finance business and JV stake in Xerox Japan.

It is looked at as a buggy whip with lots of debt and pension problems.

Core business is service including IT outsourcing document and technology (legacy copying).

Xerox only has $4 billion of debt not $10B, Xerox has $1.5 Billion of cash.

Core businesses should haves table revenue growth.

Using a conservative valuation fair value is $9.50 a share, downside is 11% and bullish case is 45% up.

Using leveraged FCF fair value is 35% up, downside 5% and upside to 62%.

The market cannot get past the false $10 billion debt number.

Xerox is doing okay even in its document business. Revenue was up 1% for the segment in 2011. Most of that is due to document outsourcing.

Conclusion is favorable risk reward at $7.40 a share with upside case of $12.00 a share.

Xerox is still #1 leader in the copying segment. The outsourcing business is a large part of Xerox core cash flow.

Typical contract term is 5 years; some are as long as 50 years.

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