They have over 1.15 billion in cash. Almost 11.50 cents a share. Minimal debt. Short term I would hold.3rd qtr may not be so hot.. Long term I would buy.
best returns. j
More info.. Note the estimates are .....incorrect......This was the original analysis of NCR by Morgan STanley around Jan 97:
07:44am EST 12-Dec-96 Morgan Stanley (Milunovich, Steven
Rating: Not Rated Price: 36 52-wk Rng: NM
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FY Ends ---- EPS ----
Curr Prior P/E
95A $(22.57) NM
96E (0.95) NM
97E $0.77 48.6
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Qtrly ---- 1Q ---- ---- 2Q ---- ---- 3QA ---- ---- 4Q ----
EPS Curr Prior Curr Prior Curr Prior Curr Prior
96E $(0.65) $(0.17) $(0.33) $0.20
97E $0.01 $0.13 $0.18 $0.44
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5 Yr. EPS Growth: 13%
Dividend: -- Yield: -- Mkt Cap/Rev: 54%
Shares Outst.: 101.0 Mkt Cap.: $3.65B
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KEY POINTS:
- We are initiating coverage of NCR. We like the story but are not rating the stock until there is more trading history. The stock closed its first day of when-issued trading at $36. We believe a
valuation range of $30-40 is reasonable.
- New management has refocused NCR on its core retail and finance markets. Most exciting is the company's leadership position in data warehousing, where Teradata has a pristine customer list thanks to the system's scalability.
- NCR has been the fastest turnaround in industry history; now the challenge is to grow. We look for solid 9% revenue growth in 1997 and $0.77 per share on a 70% tax rate. In 1998, the top-line might rise 7% for EPS of $2.05 on a 50% tax rate. Accelerating revenue growth and boosting the gross margin are imperative.
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DETAILS:
SUMMARY AND INVESTMENT CONCLUSION
We are initiating coverage of NCR, though we are not rating the stock for now. The company is being spun-out of AT&T ($39) through a 100% stock distribution; regular way trading will begin January 2. We like the story and are impressed with the restructuring success and positioning for growth.
Our Not Rated opinion is chosen because the stock has had just one day of when-issued trading, closing at $36 per share. Our valuation analysis suggests that a fair valuation range is $30-40 per share. In the next few months there might be price pressure from selling by AT&T shareholders, such as index funds and retail investors. Over time, however, we expect that the stock could do quite well with earnings power of $4.00-5.00 by the end of the decade.
o OPERATING LEVERAGE IS SIGNIFICANT. NCR appears to have succeeded in the fastest turnaround in industry history, but there is further to go. The way to achieve management's goal of an upper-single operating margin is by gross margin expansion since expense ratios are competitive. The current gross margin of 27% through nine months should rise into the low- and possibly mid-30s through a combination of product mix shift and process improvements. We believe NCR has earnings power of $4.00-5.00 by the turn of the century.
o THE BALANCE SHEET IS CLEAN. AT&T spun off NCR with a great balance sheet that should give customers confidence. At year end, cash could be $900 million, debt just $90 million, and equity $1.2 billion. Inventory turns and receivable days are decent and are likely to
improve. The company should be a modest cash generator.
Risks
o DATA WAREHOUSE COMPETITION IS INCREASING. Both server hardware and database software rivals are rushing into data warehousing given the high growth rate and attractive margins. The two concerns we have are (1) users opt for databases perceived as open, such as Oracle ($48) and Informix ($25), and (2) Teradata loses share in the medium and
lower end at 100-700 gigabytes, where symmetric multiprocessors and NUMA systems are alternatives. NCR is deflecting these threats by making the Teradata system more open and scaling it downward. |
