Xerox Corporation: Overpriced Acquisition Increases Risk ($XRX)


Frank Voisin writes about value investing topics at

Xerox Corporation (NYSE: XRX) is a leading global supplier of document systems, including printers, multifunctions, production publishing systems, managed print services, and software. I have received several emails asking about XRX, pointing to the fact that the company trades below book value, is profitable, and generates significant free cash flows. I thought it would be worth taking a closer look.

The printing business tends to exhibit the attractive characteristic of providing for relatively stable revenues and cash flows. This is due to the fact that many businesses in this industry generate sales from “bundled lease arrangements” in which the customer pays a single monthly price over a lease term for equipment, service, supplies and financing, plus a smaller variable component for page volumes in excess of a contractual minimum. Unlike companies that are reliant on recurring one-time product sales or signing new contracts each year, companies like XRX enjoy the fruits of their labour for many years after the customer is initially signed. This stability makes the valuation job relatively easier (at least, for this portion of the business).

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