What occurred

Shares of Xerox Holdings (XRX 13.69%) rose 13.7% on Tuesday, following the Monday night time launch of its first-quarter earnings report.

Xerox is primarily identified for its bodily printers, however the firm additionally has another services-related merchandise, reminiscent of workflow, personalization, and communications software program. Nonetheless, its printing gadgets and ink gross sales dominate revenues. That is not a progress business, which is why the corporate trades at a really low valuation.

But that low valuation set the corporate up for a spike at present, as price controls enabled Xerox to flip from losses within the year-ago quarter to earnings at present. And its full-year money move steering additionally offered room for optimism.

So what

Within the first quarter, Xerox logged a 2.8% income acquire, or progress of 5.5% in fixed foreign money. Adjusted non-GAAP (typically accepted accounting rules) earnings per share flipped from a $0.12 loss a yr in the past to a acquire of $0.49, which was spectacular.

CEO Steve Bandrowczak stated:

Regardless of a difficult macroeconomic local weather, demand for our tools and companies stays resilient and is supported by service choices that assist our shoppers mitigate present macro headwinds like greater inflation, labor shortages, and tighter liquidity situations. Additional, the advantages of a extra versatile price base and ongoing operational efficiencies helped drive enhancements in profitability within the first quarter.

Impressively, Xerox was capable of enhance gross margins by 250 foundation factors. On the convention name, administration attributed this to a mixture of bettering provide chain and logistics prices, in addition to worth will increase taken over the previous yr. The corporate additionally made progress in paying down its debt load, paying off over $450 million within the first quarter and leaving the corporate with about $3.27 billion left on its steadiness sheet.

For the complete yr, Xerox expects flat to slight declines in income, with adjusted working margins between 5% and 5.5%. Nevertheless, maybe essentially the most bullish level of steering was for free money move, which administration predicts will are available in round $500 million in 2023.

Xerox’s market cap is simply $2.4 billion, in order that makes the inventory commerce for lower than 5 instances money move. Whereas Xerox’s debt load brings the corporate’s enterprise worth to $5.7 billion, that’s nonetheless only a 10 to 11 a number of on this yr’s money move steering.

Now what

Xerox is not the sexiest inventory on the market, because it’s actually in a no-growth enterprise. Nevertheless, printing is a reasonably consolidated business, and administration appears to be succeeding in wringing numerous profitability out of the enterprise. At this valuation, the inventory can nonetheless work if administration executes and the financial system does not take a extreme downturn.