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Can NCR Corporation (NCR) Sustain its Momentum in 2017?

Zacks Equity Research
Updated

NCR Corporation NCR is one of the technology companies that demonstrated remarkable share price performance last year. The company has generated high returns for investors in 2016, and has the potential to exceed expectations in the days ahead.

Last year, the stock surged roughly 65.8%, outperforming the Zacks categorized Computer-Integrated Systems industry, which witnessed a gain of 28.7%.

What Drove the Stock?

NCR Corporation is one of the world’s leading consumer transaction technology providers. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals.

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The company posted positive earnings surprises in the trailing four quarters, with an average surprise of 9.77%. Last quarter, the company reported splendid results. Its top line and bottom line not only came ahead of the respective Zacks Consensus Estimate, but also marked solid year-over-year improvement.

Buoyed by strong quarterly performance, the company raised its revenue guidance for 2016 and provided an encouraging outlook for the fourth quarter.

Additionally, NCR’s prospects look bright as its earnings per share growth rate projection of 9.2% for 2017 is much higher than the Computer-Integrated Systems industry’s average growth rate of 4.4%. Moreover, the stock has a VGM Style Score of ‘A’, which signifies that it still has much upside potential left.

Challenges

The company has always had a good amount of debt on its balance sheet. Its long-term debt (including short-term obligations) position was $3.3 billion as of Sep 30, 2016. Liquidity is low, since cash and liquid assets are just a fraction of its total assets. We think that the company has limited financial flexibility because of its high debt burden, and further increases in debt could make investment in the shares risky.

Further, uncertain economic conditions and competition from the likes of Diebold Inc. DBD and International Business Machines Corp. IBM remain concerns.

Our Take

NCR has been the global leader in self-service ATMs for several years in terms of market share. The company remains the largest supplier of ATM machines in Asia-Pacific and North America while maintaining its leadership in the Asian and European markets.

Global research company, RBR expects India to install base similar to the size of the U.S. by 2020, trailing only China. Currently, India is the world’s fourth-largest ATM market with China, the U.S. and Japan holding the first three spots. This creates huge opportunities for companies like NCR.

Going forward, continuous product launches, growing popularity of its self-service offerings and synergies from acquisitions are the catalysts. Continuous deal wins also drive growth. Moreover, NCR strengthened its position in the POS market through the integration of Radiant Systems.

We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even in difficult times. Hence, we suggest investors to hold on to the stock as of now.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the technology sector is Marvell Technology Group Ltd. MRVL, sporting a Zacks Rank #1. Marvell has long-term expected earnings per share growth rate of 12.3%.

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International Business Machines Corporation (IBM): Free Stock Analysis Report
 
NCR Corporation (NCR): Free Stock Analysis Report
 
Diebold, Incorporated (DBD): Free Stock Analysis Report
 
Marvell Technology Group Ltd. (MRVL): Free Stock Analysis Report
 
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Zacks Investment Research