This week I’m traveling overseas to London yet continue to watch our stocks and keep up with any news. Xerox (XRX) reported earnings this past week, so I’ve included some brief comments. While the May edition of the Cabot Turnaround Letter is scheduled to be published next Wednesday, I have contracted Covid – which may delay my return to the United States due to a safety certification process more rigorous than that for bubonic plague. If delayed, the monthly letter and Catalyst Report will be published as soon as practical. My apologies.
Earnings updates:
Xerox Holdings (XRX) – While the near-term outlook remains clouded, as office workers remain in partial work-from-home mode, we believe the company’s revenue and cash flow will recover. Investors underestimate Xerox’s value due to its zero-growth prospects, but the company’s hefty free cash flow has considerable value. The balance sheet is strong, new and capable leadership is working to drive shareholder value higher, and its generous dividend looks reliable.
Xerox reported an adjusted loss of $(0.12)/share, a sharp reversal from a profit of $0.22 a year ago and the consensus estimate for earnings of $0.12. Revenues fell 2.5% and largely in line with estimates. The huge miss on earnings and the generally dismal results dragged the shares down 16% on the day.
Underlying demand for Xerox’s products seems steady, even as supply chain issues apparently constrained the company’s ability to produce and deliver on equipment orders. Equipment sales fell 18% but were buttressed by sales of paper and other supplies. We watch equipment sales as they usually are a precursor for future paper and supply sales, so the sharp fall-off was discouraging.
Rising costs for labor, inputs and shipping weighed heaving on expenses. The company said it is implementing price increases, efficiency-boosting initiatives and other efforts to offset these higher costs and maintained its full-year revenue and earnings guidance. An important component of Xerox’s guidance is that workers continue to return to offices – a trend that is likely to continue but may not be as strong as Xerox needs.
Xerox was hit hard by the pandemic, which upset its cash generation powers to an extent that it may not fully recover. We are evaluating whether we need to trim our price target.
Ratings change:
Vistra Energy (VST) – Moving from Buy to Sell. The shares have crossed our 25 price target. While natural gas prices have surged, which benefits Vistra, energy markets have become exceptionally volatile, adding to the fundamental risks within the company. The risk/return trade-off is no longer favorable. The shares generated approximately a +56% total return since our initial recommendation about ten months ago.
Quick notes on recent news and analysis for other portfolio companies this past week are included below:
- Comments on other recommended companies:
- Kaman Corporation (KAMN) – announced a new $50 million share repurchase program.
- Shell plc (SHEL) – is in discussions to sell its stake in a major Russian gas export operation to a Chinese state-run company.
- Toshiba (TOSYY) – the company hired outside advisors to help solicit bids from investors.
Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.
| Market Cap | Recommendation | Symbol | Rec. Issue | Price at Rec. | 4/7/22 | Current Yield | Current Status |
| Small cap | Gannett Company | GCI | Aug 2017 | 9.22 | 4.15 | 0.0% | Buy (9) |
| Small cap | Duluth Holdings | DLTH | Feb 2020 | 8.68 | 11.92 | 0.0% | Buy (20) |
| Small cap | Dril-Quip | DRQ | May 2021 | 28.28 | 32.42 | 0.0% | Buy (44) |
| Small cap | ZimVie | ZIMV | Apr 2022 | 23.00 | 24.64 | 0.0% | Buy (32) |
| Mid cap | Mattel | MAT | May 2015 | 28.43 | 22.83 | 0.0% | Buy (38) |
| Mid cap | Conduent | CNDT | Feb 2017 | 14.96 | 5.44 | 0.0% | Buy (9) |
| Mid cap | Adient plc | ADNT | Oct 2018 | 39.77 | 34.23 | 0.0% | Buy (55) |
| Mid cap | Lamb Weston Holdings | LW | May 2020 | 61.36 | 68.57 | 1.4% | Buy (85) |
| Mid cap | Xerox Holdings | XRX | Dec 2020 | 21.91 | 17.06 | 5.9% | Buy (33) |
| Mid cap | Ironwood Pharmaceuticals | IRWD | Jan 2021 | 12.02 | 12.13 | 0.0% | Buy (19) |
| Mid cap | Viatris | VTRS | Feb 2021 | 17.43 | 10.38 | 4.6% | Buy (26) |
| Mid cap | Vistra Corporation | VST | Jun 2021 | 16.68 | 25.44 | 2.7% | SELL |
| Mid cap | Organon & Co. | OGN | Jul 2021 | 30.19 | 32.21 | 3.5% | Buy (46) |
| Mid cap | Marathon Oil | MRO | Sep 2021 | 12.01 | 25.36 | 1.1% | Buy (30) |
| Mid cap | TreeHouse Foods | THS | Oct 2021 | 39.43 | 34.36 | 0.0% | Buy (60) |
| Mid cap | Kaman Corporation | KAMN | Nov 2021 | 37.41 | 44.33 | 1.8% | Buy (57) |
| Mid cap | The Western Union Co. | WU | Dec 2021 | 16.40 | 19.20 | 4.9% | Buy (25) |
| Mid cap | Brookfield Re | BAMR | Jan 2022 | 61.32 | 52.96 | 0.0% | Buy (93) |
| Mid cap | Polaris | PII | Feb 2022 | 105.78 | 103.97 | 0.0% | Buy (160) |
| Mid cap | Goodyear Tire & Rubber | GT | Mar 2022 | 16.01 | 13.19 | 0.0% | Buy (24.50) |
| Large cap | General Electric | GE | Jul 2007 | 304.96 | 89.61 | 0.4% | Buy (160) |
| Large cap | Shell plc | SHEL | Jan 2015 | 69.95 | 55.55 | 3.5% | Buy (60) |
| Large cap | Nokia Corporation | NOK | Mar 2015 | 8.02 | 5.18 | 1.8% | Buy (12) |
| Large cap | Macy’s | M | Jul 2016 | 33.61 | 24.58 | 2.6% | HOLD |
| Large cap | Credit Suisse Group AG | CS | Jun 2017 | 14.48 | 7.20 | 3.6% | Buy (24) |
| Large cap | Toshiba Corporation | TOSYY | Nov 2017 | 14.49 | 20.75 | 3.1% | Buy (28) |
| Large cap | Holcim Ltd. | HCMLY | Apr 2018 | 10.92 | 9.88 | 4.5% | Buy (16) |
| Large cap | Newell Brands | NWL | Jun 2018 | 24.78 | 23.02 | 4.0% | Buy (39) |
| Large cap | Vodafone Group plc | VOD | Dec 2018 | 21.24 | 16.58 | 6.2% | Buy (32) |
| Large cap | Kraft Heinz | KHC | Jun 2019 | 28.68 | 43.45 | 3.7% | Buy (45) |
| Large cap | Molson Coors | TAP | Jul 2019 | 54.96 | 54.41 | 2.8% | Buy (69) |
| Large cap | Berkshire Hathaway | BRK.B | Apr 2020 | 183.18 | 339.06 | 0.0% | HOLD |
| Large cap | Wells Fargo & Company | WFC | Jun 2020 | 27.22 | 49.86 | 1.6% | Buy (64) |
| Large cap | Western Digital Corporation | WDC | Oct 2020 | 38.47 | 49.52 | 0.0% | Buy (78) |
| Large cap | Altria Group | MO | Mar 2021 | 43.80 | 55.93 | 6.4% | Buy (66) |
| Large cap | Elanco Animal Health | ELAN | Apr 2021 | 27.85 | 25.36 | 0.0% | Buy (44) |
| Large cap | Walgreens Boots Alliance | WBA | Aug 2021 | 46.53 | 45.93 | 4.2% | Buy (70) |
Please feel free to share your ideas and suggestions for the podcast with an email to either me at
bruce@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time limit we may not be able to cover every topic each week, but we will work to cover as much as possible or respond by email.Market cap is as-of the Initial Recommendation date. Current status indicates the rating and Price Target in ( ). Prices are closing prices as-of date indicated, except for those indicated by a "*", which are price as-of SELL recommendation date.
Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time.