Xerox (XRX) Q4 Earnings: Is the Stock Likely to Disappoint?

Xerox CorporationXRX is scheduled to report fourth-quarter 2016 results before the opening bell on Jan 31. In the last reported quarter, the company's adjusted earnings matched the Zacks Consensus Estimate. Over the trailing four quarters, the company delivered a positive average earnings surprise of 6.5%, beating estimates twice.

Let's see how things are shaping up prior to this announcement.

Key Factors in the Fourth Quarter

Advancements in IT have resulted in the replacement of the traditional means of sending and storing information with the digital media. As a result, Xerox is grappling with decreased demand for paper-related systems and products, while its attempts to leverage the business process outsourcing market failed to lend a growth momentum. Significant slip-ups in its Medicare and Medicare information services for several government agencies across the U.S. have also hurt its overall profitability.

A considerable portion of the company's revenues is generated from operations outside the U.S. With modest revenues coming from the U.K., Xerox is expected to be a high-profile victim of the Brexit fallout as it has a significant number of manufacturing and engineering facilities in the country. The company also has high pension obligations in the U.K. Pension Plan for salaried employees. Xerox is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company. These undermine its long-term growth potential to some extent.

Xerox has completed the separation of Conduent Incorporated, creating two market-leading, publicly-traded companies. Although the transaction will enable Xerox to refocus on its Document Outsourcing businesses and other high-margin business services, it will likely result in lower revenues and earnings dilution in the to-be-reported quarter. High restructuring charges will further hurt margins and impact bottom-line growth.

Earnings Whispers

Our proven model does not conclusively show that Xerox is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -10.7%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Xerox Corporation Price and EPS Surprise

Xerox Corporation Price and EPS Surprise | Xerox Corporation Quote

Zacks Rank: Xerox has a Zacks Rank #5 (Strong Sell).

As it is we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

American Financial Group, Inc. AFG , which is set to report fourth-quarter earnings on Feb 1, has an Earnings ESP of +5.56% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

The Allstate Corporation ALL has an Earnings ESP of +3.73% and a Zacks Rank #3. The company is slated to report fourth-quarter earnings on Feb 1.

AXIS Capital Holdings Limited AXS has an Earnings ESP of +6.45% and a Zacks Rank #3. The company is set to report fourth-quarter earnings on Feb 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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