Is NCR Poised for Further Growth?

Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

NCR Corp. (NYSE: NCR) is a nearly 130-year-old company that has undergone many changes over the years. The maker of ATM machines, retail point-of-sales systems, and other self-service technologies is performing well as it continues to invest in its product line. As additional industries embrace such offerings, NCR is aiming to gain the additional business and remain a step ahead of its competitors in the process. If the company can capitalize on these new market opportunities, while also benefiting from improved demand from financial institutions for its core ATM products, it may be positioned for ongoing significant profit gains. In that case, the stock could well outperform the broader markets in the long term.

ATM Sales on the Rise

The company is experiencing higher demand from both national and regionally-based banks. It is also gaining new customers at a brisk pace, many in emerging international markets. Profitability in its Financial Services segment was flat year over year in the September quarter, though, due to the lower-margin mix overseas and increased R&D spending.

Along with capital spending by banks, new product models with advanced features can drive cyclical strength in this business. Currently, NCR is rolling out its Scalable Deposit Module as well as software-based, “branch transformation” equipment. Such offerings hold promise as sales and profit growth contributors next year and beyond.

Hospitality Opportunity

A 2011 acquisition highlights NCR’s determination in building its presence in the hospitality / restaurant market. Its Radiant Systems, bought in August 2011, is a producer of such solutions. NCR’s gross margins are benefiting from the deal that enhances its share of a potentially high-growth sector. It will aim to boost the expansion rate at Radiant through its expansive distribution network and customer base.

In fact, NCR is increasingly targeting untapped industries for self-service kiosks. Thus far, it is making strides in the travel and gaming sectors. That said, NCR may be unenthusiastic about its prospects in other end markets, given the sale and planned divestiture of its healthcare and entertainment (DVD kiosks) businesses, respectively.

Financial Outlook Positive

With a positive banking environment, NCR should continue to build its Financial Services backlog, driving profit advances. Its main competitor in that business is Diebold, Inc. (NYSE: DBD), a company with growing product sales that is also transitioning toward software services. Where DBD differs is that it hasn’t as of yet made a material mark in budding product markets. Instead it continues to operate a growing Security business.

NCR’s Retail Solutions business is on the mend as of now. Sales are likely to be erratic over time, but management is bolstering the profitability of its retail product line. Its Services unit may well also remain on a growth path. The wild card is whether NCR will effectively expand its array of products to lesser served industries. There is a distinct possibility that it will, as others follow the lead of airlines and hotels in reducing their distribution costs, despite signs of discouragement on NCR’s part pertaining to certain markets. Incidentally, NCR’s pension costs have been a deterrent to results in recent years; it is now bringing these down, partly by way of debt issuance.

We look for NCR to stay active on the acquisition / divestiture front. In the past it has spun off a division, namely Teradata Corp. (NYSE: TDC), seemingly to the benefit of shareholders who watched the stock soar over several years. TDC’s data warehousing operations are providing it with a solid base for top- and bottom-line gains.

Conclusion

NCR is focused on being an innovator and not just a maker of traditional hardware products. Its somewhat aggressive strategy can have setbacks on occasion. In the long term, though, with an underpinning of a strong core ATM unit, it may well thrive. NCR shares thus have appeal as a buy and hold selection. Their The Motley Fool CAPS rating is 3 out of 5 stars.

 

  




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