Xerox Corporation (XRX): This Forgotten And Undervalued Tech Giant Could Climb 30%

Value Galore
While revenue growth stagnated last year (and earnings actually slumped a little), bear in mind that 2012 was largely a retooling year in which Xerox Corporation (NYSE:XRX) fostered a more intense focus on its higher-margin service businesses. The company’s top line isn’t expected to grow much this year either; analysts forecast $22.37 billion in sales in 2013 and $22.54 billion in 2014.

So what, pray tell, makes Xerox such a great investment?

Answer: The stock is cheap relative to earnings, which are expected to grow significantly even ifrevenues don’t.

The latest analyst estimates say per-share profits are on pace to grow from $1.03 in 2012 to $1.10 this year to $1.18 next year. That’s a growth rate of “only” 7% for this year and next year. But bear in mind that Xerox Corporation (NYSE:XRX) has a history of beating estimates. In fact, the company has topped earnings estimates in nine of its past 13 quarters.

When it’s all said and done, the trailing price-to-earnings (P/E) ratio of 10 is low enough to be considered a bargain as is. Xerox’s expected 2014 P/E of 7.8, however, is about as much of a bargain as an investor could hope for, especially knowing shares of competitors like International Business Machines Corp. (NYSE:IBM) and Canon Inc. (ADR) (NYSE:CAJ) are priced at P/E ratios of 13.5 and 15, respectively.

Risks to consider: Although the company is delivering a top-notch service or product in its key markets, many consumers — not to mention investors — don’t realize Xerox does so much more than just photocopiers now. Other companies will have an easier time leveraging their brands while Xerox Corporation (NYSE:XRX) continues to reposition its brand name and image.

Action to take –> Xerox Corporation (NYSE:XRX) may be undervalued, but the market’s seeing it like a value stock, and that’s not apt to change anytime soon. Investors dreaming of triple-digit gains in just a few months may be disappointed. But for patient value-seeking investors, Xerox shares could justify up to a 30% gain within the foreseeable future.

This article was originally written by James Brumley and posted on StreetAuthority.