Analyst: Buy Xerox — Whether Fuji Deal Closes Or Not

Xerox Corp XRX said on Wednesday it has reached a merger agreement with Fujifilm in which the Japanese company will buy Xerox for $6.1 billion and combine the American company into its existing joint venture, Fuji Xerox. But the case for owning Xerox's stock could have been made without the deal, according to Loop Capital Markets.

The Analyst

Loop Capital Markets' Ananda Baruah maintains a Buy rating on Xerox's stock with a price target boosted from $38 to $45.

The Thesis

Xerox also reported fourth-quarter results, which by itself would have been compelling enough to justify buying the stock, Baruah said in a Thursday note. (See the analyst's track record here.)

The company earned $1.04 per share in the quarter, beating a consensus estimate of 96 cents per share, and guided its full fiscal year 2018 EPS to a range of $3.50 to $3.70. This should solidify the case for Xerox as a standalone business to hit $4 in EPS by 2019, Baruah said. 

Surprisingly, Xerox's confirmation of a merger agreement resulted in a muted reaction in the stock, but this represents an opportunity for investors, the analyst said. Baruah named four reasons to back the deal:

• Xerox could benefit from increased portfolio size in large accounts.
• Xerox would become more competitive through supply chain improvements.
• Xerox's SMB strategy could be implemented in the Fuji Xerox venture.
• An expansion into packaging and digital industrial inkjet.

Price Action

Shares of Xerox were down 0.26 percent at $33.97 early in Thursday's trading session. 

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