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Turnaround Letter
Out-of-Favor Stocks with Real Value

Moving XRX to Sell, with 50% Total Return

We are moving Xerox Corp (XRX) to a Sell.

The shares currently trade at around $38.25, leaving only about 5% upside to our $40 price target.

Xerox’s recent announcement (and closing today) of its sale of its Fuji Xerox stake was directly in-line with our investment thesis of “Xerox as an undervalued generator of large cash flows”, with those cash flows being returned to shareholders.

However, its recent offer to merge with Hewlett-Packard for $22/share in cash and stock changes the Xerox thesis to a much more complicated and higher risk “leveraged merger-integration” situation. Even if this deal doesn’t move forward, the offer indicates that the company and its risk profile are moving in a direction away from our interests at this time.

We might be quite interested in re-purchasing Xerox shares at much lower prices should it stumble after a merger or after other strategic changes.

Xerox shares have produced an approximately 50% total return since our initial recommendation.

We move shares of Xerox Corp (XRX) to a Sell.

Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks including XRX shares.