Join us Thursday 4/24 at 2pm Central Time, as we focus on the valuation range for Ford (F). Register here. HIDE

YTD, Two Hot Tech Stocks are ATM Makers; 3% Dividend Yield vs. Prudent Diversification

By the looks of the share prices lately, one might think ATMs are the hottest technology going. Here are the gains in recent weeks for shares of NCR Corp. (NCR) and Diebold (DBD), the two largest sellers of teller machines and the services that keep them running, and year-to-date they smoked Apple (AAPL) and a resurgent Microsoft (MSFT).

Diebold Stock Chart

Diebold Stock Chart by YCharts

It’s true that there’s a surge of demand for new ATMs as financial institutions scramble to find systems that can thwart thieves intent on grabbing the data – aka identities – as well as the cash inside them. Newer machines will include safeguards using vein pattern recognition software or off-machine data storage.

But is there really such demand for cash machines that both of these mid-caps deserve 25% and more market cap gains? Or is one of them destined to disappoint?

Among hedge fund managers, NCR is the more revered at the moment. Some 3% of David Einhorn’s Greenlight Capital was invested in NCR at Dec. 31, although he sold some shares during that year-end quarter. About half of the analysts that follow the stock consider its shares too pricey for today’s buyers, but the company is universally liked as a hold or better.

NCR recently reported great sales and underlying profit gains, along with a growing backlog of business to come. In addition to a big rise in ATM and related services sales, overall results were helped by industry-specific devices, like the check-out scanners used at grocery stores and restaurants, and the service contracts that went with them. Profit margins widened.

NCR Corporation Revenues TTM Chart

NCR Corporation Revenues TTM Chart by YCharts

Cash isn’t a problem for NCR either. The company recently agreed to collect $100 million from Coinstar (CSTR) in exchange for its money-losing division that makes self-serve DVD rental kiosks. Free cash flow has been getting stronger.

NCR Corporation Free Cash Flow TTM Chart

NCR Corporation Free Cash Flow TTM Chart by YCharts

The share price has boomed to a whopping 66 times recent earnings, but its price/sales ratio remains well below one. Analysts expect about 25% earnings growth this year. Based on historic performance, YCharts Pro gives NCR average ratings for fundamentals in part because of poor sales and earnings figures prior to 2010. The charts rate its share price below average for value.

Diebold, whose $2.36 billion market cap is about two-thirds of NCR’s $3.45 billion, gets mainly hold recommendations from analysts. YCharts Pro puts its fundamentals as stronger and its shares as cheaper than NCR’s.

Diebold, too, reported fourth quarter growth in profits and revenues and free cash flow, but all was hampered a bit by a security division whose growth largely depends on installing cameras in new bank branches. The banks closed branches instead. Still, the company gained major contracts at NCR’s expense by offering security services along with its ATMs. About half of its sales are in foreign countries, and the shares offer one big advantage over NCR’s: a dividend yielding about 3%. NCR pays no dividend.

A key difference between the companies lies in their reliance on financial institutions for success. NCR spent $1.2 billion last year to ensure a non-banking revenue stream. It purchased Radiant Systems and built a whole new business division focusing on machines and service for airlines, rental car agencies, hotels and other hospitality and retail companies.

Diebold wandered outside of the financial industry several years ago without much success. Almost all of its business now is tied to financial institutions, an industry that’s produced a fount of bad news lately. Diebold’s earnings won’t be pretty if the banks decide to put off ATM and security spending to pay for sovereign debt and mortgage problems. But that’s what the dividend payment is for.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

Read more articles about: Company Analysis  

blog comments powered by Disqus
Advertisement

Search Articles

Subscribe to YCharts Analysis

Advertisement

{{root.upsell.info.feature_headline}}.
Upgrade to {{root.upsell.info.tier_name}}. Start Your YCharts Membership. Start your {{root.upsell.info.tier_name}} Membership

{{root.upsell.info.feature_description}}

{{root.upsell.info.is_upgrade ? "Upgrade Now" : "Get Started Now"}}

Already a YCharts Member? Already a {{root.upsell.info.tier_name}} Member? Sign in here.