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Stocks to watch in 2002
Selecting companies with strong earnings potential is Kartik Mehta's stock in trade. The Midwest Research analyst has issued Buy recommendations for four companies in the financial self-service arena.
Although many investors can hardly bear to peek at their stock portfolios these days, at least one analyst has a bullish outlook on several companies in the financial self-service arena for the next 12 to 18 months.
Kartik Mehta, an analyst with Cleveland-basedMidwest Research, covers a roster of companies including Checkfree, Concord EFS, Diebold, Fiserv, Global Payments, Jack Henry & Associates, NCR and Paychex. He has issued Buy recommendations for Concord EFS, Diebold, Fiserv and Optimal Robotics.
Mehta is predicting an 18-20 percent EPS (earnings per share) growth rate in 2002 for Brookfield, Wis.-basedFiserv, which outsources services to financial institutions including ATM driving.
"(Fiserv) is a solid company, in my opinion. They've shown they can deliver, even in bad economic times," Mehta said. "Probably from an earnings, visibility and stability standpoint, they're the best buy right now."
Fiserv reported revenues of $1.7 billion in 2000, a 17 percent increase over the $1.4 billion reported in 1999. The company is on target for a similar year in 2001, with revenues of 1.4 billion for the nine-months ended Sept. 30, a 14 percent increase over the $1.2 billion it reported for the first nine months of 2000.
Mehta also likes Memphis-basedConcord EFS, owner of the MAC network. Like Fiserv, Concord has posted strong results so far this year, reporting revenues of $1.2 billion for the nine months ended Sept. 30, up 23 percent over revenues of $1.0 billion for the same period in 2000.
"Concord has shown they can deliver pretty amazing results, and the market has rewarded it," Mehta said. "I think what will really make or break Concord will be their ability to leverage the Star acquisition."
Concord plans to integrate all of its Network Services operations under the Star brand, after acquiring the Star Systems network last February. Concord has said it expects transition to the Star brand to be complete by 2004.
Concord's strength as a transaction processor for the petroleum and supermarket industries will help it weather the current unfavorable economy, Mehta said. "Even when the economy is slow, people have to buy groceries and gas."
He added, "They bet big that PIN-based debit was going to really catch on, and it's starting to pay off for them."
Mehta's other Buy recommendations are forOptimal Robotics, the Montreal-based provider of self-service checkout systems, andDiebold, the North Canton, Ohio-based ATM manufacturer.
Optimal Robotics has installed 5,000 of its U-Scan checkout terminals in the U.S., including about 1,000 for its largest customer, the Kroger supermarket chain. It has reported revenues of$84.5 million for the year to date, compared to revenues of $48.4 million for the first nine months of 2000.
"People are gravitating toward the kind of self-service technology (Optimal Robotics) offers," Mehta said.
In surveys conducted by Midwest Research, Mehta said that retailers offering self-service technology indicated that 15-20 percent of their transactions occur in those checkout lanes. "At Wal-Mart, the figure is even higher – 20-30 percent," he said. "The highest figure, almost 50 percent, was at a store near Microsoft headquarters."
Mehta said Diebold's $26 million purchase of Global Election Systems, a McKinney, Texas-based maker of electronic voting equipment, will boost its bottom line in 2002. "Next year is going to be a big one for upgrading voting equipment," Mehta said, joking, "Of course the first state to do so will be Florida."
Despite Diebold's recent $19 million writeoff related to its investment in InnoVentry, a now-bankrupt San Francisco-based deployer of automated check cashing kiosks, Mehta said continued activity in check cashing will produce benefits for Diebold in the coming months. Diebold provides check cashing terminals for Irving, Texas-based chain Ace Cash Express.
NCR, Diebold's Dayton, Ohio-based competitor, also got a strong push in the advanced technology space in 2001 with 7-Eleven's expansion of its Vcom program. NCR supplies the retail chain with its Vcom kiosks, which feature check cashing, money orders and money transfers in addition to standard ATM functionality. Currently, 94 of the kiosks are installed at 7-Eleven stores in Florida and Texas.
Increased international orders should improve the earnings outlook for both ATM manufacturers in 2002, Mehta said. Both Diebold and NCR posted double-digit growth in the Europe/Middle East/Africa and Asia Pacific regions in the first nine months of 2001.
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Diebold Nixdorf
As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.
