The Day Ahead: AT&T's NCR finally shines

Commentary: When you look at how the AT&T family is doing lately it's like playing six degrees from a 52-week low.

For starters, AT&T shares are struggling amid weak revenue growth and slow motion breakup plans.

The rest of the family isn't doing so hot either. Broadband-happy AT&T also bought a controlling stake in Excite@Home only to watch shares stumble on subscriber and revenue growth worries. AT&T Wireless, one of this year's hyped up IPOs, has lost its connection with investors. Lucent, the former star of the AT&T universe, just booted its chief exec amid sluggish results. Avaya, a Lucent spinoff, also hasn't set Wall Street on fire.

Things have become so topsy-turvy in AT&T's universe that the spinoff no one wanted -- NCR -- is currently doing better than its high falutin' cousins. Call it the revenge of AT&T's bastard child.

First, a history lesson: AT&T bought NCR in 1991 and named it AT&T Global Information Solutions. AT&T got over its IBM envy in 1997 and spun off NCR as an independent company. NCR initially had some execution problems, but lately has been delivering some strong results. NCR, which makes ATM machines and cash registers, slowly but surely became an "IT solutions provider."

As the stock market pummeled overvalued tech stocks, NCR now has a market capitalization even with Excite@Home. While most of AT&T's offspring are trading near 52-week lows, NCR is within shouting distance of a 52-week high.

Once you look under the hood of NCR, it's no surprise why shares are doing well.

On 19 October, NCR topped estimates for the third quarter with earnings of $58m, or 59 cents a share, excluding charges. Earnings were 45 percent higher than a year ago. Revenue for the third quarter checked in at $1.46bn, down from $1.53bn a year ago.

Usually, a revenue decline brings out jeers from analysts. But Wall Street has been eyeing NCR's data warehousing revenue, which was $230m for the third quarter, up 28 percent from a year ago. NCR also raised its fourth quarter and 2001 revenue forecast from 15 percent to 20 percent and 20 percent to 25 percent, respectively.

Based partly on the data warehousing growth, Merrill Lynch analyst Tom Kraemer raised his rating from "accumulate" to "buy". Kraemer cited three main reasons for his upgrade. NCR's data warehousing business is growing above expectations, the company is executing, and the ATM business is doing well.

"They have a reason to gloat about data warehousing," said Kartik Mehta, an analyst with Midwest Research. Mehta is forecasting NCR's data warehousing business to post about $1bn in annual sales, roughly 15 percent of the company's revenue. In the long run, data warehousing will account for 20 percent to 25 percent of NCR's revenue.

According to earnings tracking firm First Call, NCR is expected to post a profit of $2.41 a share for fiscal 2000 and $2.89 a share in fiscal 2001.

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