The (Self-Checkout) Express Lane to Profits (TGT, CVS, WMT, NCR, DBD, RADS)
The use of technology for automated functions appears to be increasing in the retail and financial sectors. I am a frequent shopper at major chain stores such as Target (TGT), CVS Caremark (CVS), and Wal-Mart Stores (WMT). It seems that each time I visit these retail stores I notice one major trend, the migration from employee operated to self-checkout kiosks. I also do my everyday banking at a major financial institution which has begun installing intelligent ATMs. These new ATMs allow for more capabilities, from depositing checks to in depth balance transfers.
At first I was intrigued with these changes, so I looked to see what could be motivating this transition. It took little time to realize the major savings from this would be the salaries of employees. Companies still would need to purchase kiosks, whether self checkout or employee operated, so that to me was a “wash” in formulating my opinion.
Once it was evident this would be a new growth sector, I dove into researching what company was primarily behind these machines. To review a list of companies in the sector, I used the Point of Sales and ATM Technology Index.
The answer was NCR (NCR), the same company that invented the first cash register back in 1884. NCR has moved on from those original cash registers and now has developed two key growth drivers for its future. The company has taken a strong foothold in the self checkout and intelligent ATM arenas, two areas that I see to have solid growth going forward. NCR has a diversified business model with solutions ranging from the two areas stated above to software, illustrating it does not completely rely on the adoption of this technology for all earnings.
During the last conference call on April 28, 2011, NCR noted that it has installed more intelligent ATMs in Europe, Africa and North America than any other company. It also stated it saw an increase of 75% year over year for the self checkout kiosks. This to me is a clear sign that business is good and companies continue to spend on increasing the serviceability of their clients through the use of intelligent ATM’s and self checkout kiosks. NCR also addressed its backlog, calling it the largest it’s ever seen with an increase of 13% year over year.
Looking at NCR from a valuation standpoint, the stock has risen 55% over the last year. At the time of writing, the stock appeared to be fairly valued. Analysts are looking for the company to grow earnings 12% over the next year, illustrating that the company should continue to realize growth. The stock is trading with a P/E of around 20, average for technology stocks traditionally. Financially the company is very secure; it sports little debt and has a Book Value per share of $5.77.
When developing an investment thesis it is always good to create a basket of stocks that could benefit from the growth of a new sector. It can be difficult to pinpoint just which company will prevail within a new industry. For this reason I used the tickerspy Point of Sales and ATM Technology Index. Two other stocks in the Index that are positioned to potentially benefit from this sector growth are Diebold (DBD) and Radiant Systems (RADS). Both offer competitive and complimentary products to NCR.
NCR should be poised for growth going forward, as companies become more reliant on self checkout kiosks and intelligent ATMs. One can argue NCR is not cheap right now, but being able to track the stock and other companies in the Index can provide a way to take advantage of any short-term market weakness with a stock or Index, allowing an investor to purchase shares during a temporary pullback in price.
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