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Few technological companies have made it through two pandemics. However, 137-year-old
NCR
isn’t your normal IT company. The corporation, formerly known as National Cash Register, predates the automobile, jet, and computer. It has spent the most of its history developing retail point-of-sale systems and, finally, bank cash machines. In recent years, the corporation has moved away from hardware and into more profitable subscription-based software and services, following in the footsteps of other digital companies. NCR’s revenues increased by 8% in 2019, the biggest increase since 2011.
Then there was Covid-19, which hammered NCR (ticker: NCR) harder than most tech firms. Physical stores that rely on NCR’s technology have shut down. Small restaurants have closed their doors. Customers in the NCR with a larger budget, such as
McDonald’s
(MCD),
Wendy’s
& (WEN)
Walmart
(WMT) became so busy that they had to put a halt to system updates. While banks were not directly impacted, many reduced capital expenditures on items such as automated teller machines. NCR had to postpone its changeover. Revenue has dropped for four quarters in a row, and is expected to drop 10% in 2020. However, a recovery is already underway. In the March quarter, sales increased by 3%. NCR stock may now be one of the finest opportunities to profit from the consumer economy’s post-Covid recovery. In a recent research note, Morgan Stanley analyst Katy Huberty said, “We consider NCR as the most appealing recovery play in IT hardware.”
After decreasing by 40% in 2020, NCR earnings are expected to increase by more than 60% this year, to $2.75 per share, with another 30% increase in 2022. This year’s sales are expected to increase by 10% to $6.82 billion. NCR’s current condition, according to CEO Michael Hayford, is similar to NCR’s position a century ago, when the world was recovering from the Spanish Flu. According to him, NCR had a market share of more than 90% for cash registers during the Roaring Twenties. He claims that “one hundred years ago, NCR ran commerce for everyone.” “The cash register was retail-store technology.” Today, NCR’s goal is to reclaim that 90 percent share of the retail market. He says, “I want to run your store.” This covers not just self-checkout and terminals, but also software for e-commerce, loyalty programs, and marketing. Self-checkout is a major development factor in the retail industry. While big-box shops like Walmart were the first to implement the technology,
Home Depot is a store that sells a
(HD),
Target
Hayford claims that the technologies are seeping down to smaller grocers and convenience outlets from TGT and grocery-store conglomerates. According to him, self-checkout provides for shorter lineups and lower labor expenditures. NCR is attempting to achieve similar savings with its restaurant clients, using technology and software that enables diners to order food directly from their table, view a menu online, and pay with a mobile device. Hayford sees an opportunity for expansion in assisting the restaurant business in making a return. According to him, 35 percent of all restaurant establishments shuttered during the pandemic, so new openings are a big deal for NCR. The idea that people would avoid using cash early in the epidemic hampered NCR’s banking business—the fear was that infected greenbacks would spread Covid. However, according to Hayford, ATM withdrawals increased last spring as clients stocked up on cash as a safety net. Banks, on the other hand, are progressively purchasing ITMs, or interactive teller machines, which provide real-time access to a remote teller. Even as branches close, technology can help a bank retain its client service capabilities. ITMs, like self-checkout, improve the efficiency of existing outlets. According to Hayford, operating an ATM costs banks roughly $100 per month, with NCR receiving about a third of that. The CEO, on the other hand, wants the entire $100. Cardtronics, the world’s largest nonbank ATM operator, was recently purchased by NCR for $2.5 billion. NCR plans to use the purchase to develop an ATM-as-a-service model, which Hayford believes will increase the company’s potential market.
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NCR stock has doubled from its Covid-era lows, but it still appears inexpensive at 17 times anticipated 2021 earnings. On a sum-of-the-parts basis, Morgan Stanley’s Huberty believes NCR might be worth as much as $104 a share, more than double its recent level of $46. Investors, according to Hayford, are overlooking NCR’s potential. He points out that the stock trades at a substantial discount to a basket of seven software-focused companies that compete in NCR’s main markets: vendors of banking software
Holdings in Q2
(QTWO),
Alkami
ALKT, as well as
nCino
(NCNO); software businesses for restaurants
PAR Technology is a company that specializes in developing
(PAR),
Olo
(OLO), Toast (venture-backed and still in the pre-IPO stage), and a retail software company
POS Lightspeed
(LSPD). Those seven are worth a total of $53 billion, with $2.1 billion in estimated sales this year; the basket trades at more than 25 times sales. With an enterprise value of $8 billion, NCR is worth little over one time its estimated sales in 2021. Hayford is dedicated to bridging the valuation divide. He says, “I’m a very substantial shareholder and the CEO of a public corporation.” “I have a fiduciary duty to my stockholders. Would I consider doing something if the market does not provide us with the value that we may obtain in another way? I believe I would have to.” Hayford is ready to give it more time, but he could pull levers like spinoffs or asset sales in the future. That’s just another reason to put your money on NCR’s stock. Eric J. Savitz can be reached at eric.savitz@barrons.com./n
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