One of the few things which has not recovered anywhere near pre covid levels is people working in office. While WFH could become more permanent in some sectors to varying degrees, office occupancy is bound to increase with COVID receding, higher vaccination rates & more therapeutic options in 2022.
Xerox is a cheap way to play back to office trend in 2022. Xerox made $1bio (2018) and $1.26Bio (2019) in free cash flow pre covid. In 2020 Xerox made $0.47bio in free cash flow as covid hit. Since then, free cash flow has improved to $0.6bio in the past 12 months.
Website traffic to xerox.com, where one can order their products & refills is trending higher which signals continuation in recovery.
As back to office trend continues, free cash flow should improve to $0.75bio in 2022 and ultimately $1bio in 2023.
Using $0.75 Bio free cash flow for 2022, Xerox at market capitalisation of $3.6bio is trading at 4.8 times free cash flow which is cheap.
Xerox management acknowledges the cheapness and has been buying back shares aggressively. In the last 12 months Xerox bought back for $0.65bio or 18% of current market cap. In addition, Xerox also has 5% dividend yield at current valuation.
In addition to buybacks, insiders have also been buying shares in open market.
Because of the buybacks, Xerox current market cap is at the same level as Q2 2020 when most of the world was in lock down. There is almost no business which is available today at peak covid scare valuation. I expect Xerox to recover to $6bio market cap in 2022 (market cap was $8bio just before covid hit) which implies +66% upside.