It's Time To Add NCR To Your Portfolio

Jul.17.14 | About: NCR Corporation (NCR)

Summary

NCR has provided shareholders with a 172% return in the last five years.

NCR has a unique potential to be taken over or to take over businesses itself.

NCR is poised to continue its growth trajectory.

NCR Corporation (NYSE:NCR), formally known as National Cash Register, has evolved and grown its business from way more than just cash registers and ATMs. NCR was founded in 1884 and currently operates in at least 180 countries. Thus, for 130 years, NCR has helped companies better interact, connect and transact with its customers. At this point, NCR is a leader in the consumer transaction technology sector. Through NCR's portfolio of solutions, more than 485 million transactions are enabled on a daily basis. NCR is a very diverse company and its software, hardware and other products offer many services. Among them are: retail, financial, travel, hospitality, telecom and technology fields. A brief look at the company's products section of its website will quickly put in perspective both the broad and massive scope on which NCR operates.

By no means is NCR a small company as its market cap was a cool $5.55 billion as of 7/16/14. However, this wasn't always the case. As a matter of fact, in just the last five years, NCR's stock has offered its shareholders an enormous 172% return. In 2010, NCR was battling the reality of the recession and the stock was trading at under $10 for the first time in its history. By 2012, NCR had proved successful on its turnaround plan and its stock was trading $15 higher, at $25. Since this point, the stock has rallied 38% to the closing price of $33.08 on 7/16/14.

There is certainly reason to believe that NCR will continue its positive trend upwards. On June 23rd, Oracle (NYSE:ORCL) announced a $5.3 billion takeover deal with MICROS Systems (NASDAQ:MCRS). This deal was a positive catalyst for NCR, resulting in a 7% uptick in the stock in just one trading day. The stock most likely saw an increase because the acquisition of MICROS for two reasons. First, some speculated that this deal which represented a mere 25% premium meant that NCR may be undervalued at its current price levels, given the bid paid for a peer. Second, some speculated that NCR may very well be a future takeover target for a company with a similar size to Oracle ($180B).

Besides for the possibility of a takeover, NCR's core businesses are extremely sturdy and profitable. While NCR slightly missed on revenues last quarter, it brought in earnings of $.50 which beat analysts' expectations. As a matter of fact, NCR has beaten analysts' consensus on earnings for the last five quarters in a row. Not too shabby for a company that has a current P/E ratio of fewer than 13. Analysts expect full-year earnings of over $3 per share, which is indicative of the strength, stability and consistent profitability of this company. On top of this inner strength, ironically, NCR has been doing some takeovers itself. Just this year, NCR reached a deal to purchase Digital Insight for $1.65 billion. In 2013, NCR made a $650 million purchase of Retailix. Respectfully, both of these companies are seemingly perfect fits, as they provide market-leading platforms for banks and have innovative retail and software services. These are two hefty purchases for a company with a $5.55B market cap. Clearly, NCR believes in its business and that makes me comfortable and confident as an investor and shareholder.

Another possible future catalyst was pointed out in a recent article published by Paulo Santos from Seeking Alpha. He pointed out that 95% of ATMs throughout the world still run on windows XP. He went on to say, "While some of these might be software-upgradeable to Windows 7, many won't have the hardware for it and will need either hardware upgrades or straight-down substitution… As we saw from Intel's earnings, the main impact of the Windows XP upgrade started taking place in this very quarter, along with the end of Microsoft's support. It seems most institutions delayed the cycle to the very end. Yet, as we saw from NCR's earnings consensus, there has not yet been any upward move on those estimates. As such, there's a good likelihood that NCR will surprise on the upside."

Realistically, NCR's products are used on a daily basis by hundreds of millions of people and they are only continuing to grow. As a matter of fact, since July 8th, NCR formally announced five new deals. In such, the company become a provider of either ATMs, Mobile POS systems, or a variety of other retail solutions. Five new companies, including Barclays Bank of Botswana and Happy Belly Food Trucks, have signed up for NCR's services in the last eight days alone. On a daily basis, new companies are realizing that NCR offers a superior experience and product than anyone else.

Now seems like ideal timing for an entry point in NCR giving the fact that it will release second quarter earnings after the market close on July 29th. While NCR has met analyst expectations on earnings, it has disappointed slightly on revenues on its last two earnings reports. Analysts are calling for a $.66 per share profit and given the fact that they reported a profit of $.68 this quarter last year, I expect them to once again beat expectations of earnings per share. NCR has had a history of responding positively from adversity and finding a way to not only fix, but improve and grow its business, and I expect that to continue to be the case.

Disclosure: The author is long NCR. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.