Credit Suisse Expects Xerox To Benefit From Backlog In Q4; Predicts Minimal Opportunity In 2023

Credit Suisse analyst Shannon Cross reiterated an Underperform rating on the shares of Xerox Holdings Corp XRX with a price target of $10.
The company is scheduled to report 4Q22 results before the market on Jan. 26, 2023.
The analyst believes Xerox was able to reduce some of its backlog during the quarter and estimates Equipment revenue grew 19% y/y to $457 million, with further benefit likely in 1Q23.
In-line with the reduction of backlog, the analyst expects a higher mix of mid-range devices to benefit gross margin.
However, the analyst believes that once supply and demand normalize, total revenue will return to y/y declines reflecting fewer machines in field, lower page volumes and price pressure.
The analyst anticipates the company to provide 2023 cash flow guidance and qualitative commentary on demand trends.
The analyst estimates 2023 revenue flat y/y to $7.05 billion, non-GAAP EPS of $1.59, both above Street view.
The analyst had previously said Xerox will announce cost-cutting measures to offset macroeconomic headwinds (currency, inflation) and during the quarter, the company appointed a new COO with experience executing a large restructuring program.
The analyst estimates operating expenses will decline 3% y/y in 2023.
The analyst added that risks include higher-than-expected printing volumes, stronger-than-expected return to the office, and the ability to hold pricing on existing MPS contracts.
The analyst maintains 4Q22 revenue estimate of $1.92 billion, up 8% y/y and 2% above the Street, which includes benefit from easing supply shortages and weakening of the dollar relative to when guidance was provided.
Price Action: XRX shares are trading higher by 2.52% at $17.48 on the last check Tuesday.
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