Top picks 2013: NCR Corp.
Speculators may be able to generate some cash from this leading ATM maker.
When you drive up to an ATM at the bank, use the self-service checkout at the supermarket, or search the gift registry kiosk in a department store, there's a good chance that workstation was made by NCR Corporation (NCR), our top speculative idea for 2013..
NCR has become the market leader in financial services hardware with the #1 position in ATMs worldwide. Looking ahead, this company appears to be on a compelling growth track.
Earnings per share have been increasing at a double-digit rate over the last few years, and NCR has outlined some aggressive 2015 guidance. Revenue is projected to increase at a 7-9% compound annual rate, while adjusted operating income is expected to grow at 15-20% annually over the next three years.
The profitability of this firm is also impressive. NCR expects to more than double its free cash flow from $188 million in 2011 to over $400 million in 2015, which equates to a healthy 12% free cash flow yield based on the current stock price.
Return-on-equity, which is a measure of the company's profitability, has increased in recent years to 41.6%, which is more than twice the 18.1% industry average.
The growth prospects for NCR are not limited to the U.S. Over 60% of revenue is generated in foreign markets, and we estimate that 20-25% of revenue currently comes from fast growing emerging markets.
Also, the addressable market for NCR is expanding rapidly as global spending on banking technology is forecast to grow 24% annually out to 2015, while retail tech spending is expected to grow at a respectable 7% per year.
NCR's financial success doesn't rely entirely on hardware sales as approximately 50% of corporate revenue comes from the recurring service and support of these products.
Bottom line, NCR's position as an industry leader, combined with its international expansion potential and solid financial position, should make this an attractive investment for growth oriented investors.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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