NCR Corp (NCR) Pullback Presenting Buying Opportunity
Unusual small yet steady leap call accumulation in past 2 weeks that starts to get our attention. Quick recap:
On May 2 – Buyer of 128 Jan’18 27-strike calls for $6.00
On May 13 – Buyer of 166 Jan’18 25-strike calls for $6.50
Today – Buyer of 136 Jan’18 27-strike calls for $5.50
In all three cases aggressive bulls paid offer side on up to $2.00 wide bid/ask spread. Overall approx $260,000 call premium accumulated.
On April 26, NCR reported a strong quarter with beat on bottom line EPS due to margin improvement, and raised guidance. Highlights:
– Q1 EPS $0.38 vs. $0.33 estimate, beat
– Q1 Revenues $1.44B vs. $1.46B estimate, small miss
– FY2016 EPS Guidance $2.95 vs. $2.88 estimate, beat
– FY2016 Revenue Guidance $6.35B vs. $6.19B estimate, beat
NCR is one of the world’s biggest makers of automated teller machines (ATM). Private equity firm Blackstone invested $820 million in the company to receive a 17% stake in November 2015. Blackstone held talks to buy NCR outright, but could not agree on terms. Separately, activist investor P. Schoenfeld Asset Management (PSAM) is questioning NCR Corp’s motivation for striking a deal. PSAM said in its letter to the NCR Board on October 2015 that it owned 2.4 million shares, along with additional call options. Another activist in the stock, Marcato Capital Management, issued a statement discussing their confidence that the new Blackstone directors will bring ample analytical and strategic resources and a shareholder’s perspective to the Board, which may include M&A.
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Fundamentally, the $3.5 billion company trades at 10x forward PE and 7.5x FCF. Margins are showing signs of improvement with better top line growth after it recently launched a cloud-based software system for ATMs called Kalpana that is meant to replace outdated PC software on the machines and help owners cut costs.
Technically, the stock has pulled back to strong volume-over-price support near $27.30 and the bulls in option market are taking advantage of this weakness, quietly accumulating leap calls expiring in 2018.