NCR Growth Gaining Traction

NCR Corporation (NCR) is a large, well-established global technology firm with a diversified product base. Following a period of earnings growth through cost-cutting initiatives, the company has begun to show signs of more meaningful revenue growth.

Continued momentum in the ATM business has driven growth and led NCR Corporation to post gains in its Financial Self-Service segment, its largest division. Although its fastest growing business, Terradata, is no longer a part of the company, we are encouraged with growth in Financial Self-Services, and believe that NCR can produce sustainable growth as earnings are driven by an improving top-line.

After several years of disappointment, Financial Self-Services has grown sales initially in Europe, Middle East, Africa and Asia-Pacific, with domestic sales posting growth in 2007. The company has also been making a steady progress in the other business areas, such as Customer Service and Retail Automation. NCR is also targeting new industry verticals, for instance healthcare, travel and hospitality, to expand its market reach for self-service business.

Shares of NCR are currently trading at 16.2x our 2008 EPS estimate of $1.65, a discount to the industry mean as well as the industry median. Given the improved outlook for NCR, we maintain our Buy rating on the shares of NCR. Our six-month target price of $32.00 reflects a P/E multiple of 19.4x our 2008 EPS estimate, a large premium to the industry median.

Nat'l Oilwell Varco Still Pumpin'

National-Oilwell Varco, Inc. (NOV) reported strong second-quarter 2008 results, driven by continued robust demand for its drilling equipment. Revenue for the quarter was up 24% sequentially and over 39% year-over-year to $3.32 billion. New orders of $2.2 billion during the quarter brought the total backlog to a record $10.8 billion, highlighting a very high level of earnings visibility going forward.

Approximately 91% of the total backlog pertains to international markets, while about 87% of the total relates to offshore equipment. The improving outlook for the domestic onshore market further adds to the company's favorable prospects. The merger with Grant Prideco has transformed the company into an oilfield machinery powerhouse enjoying a very strong cyclical leverage.

We view the transaction as a win-win for the shareholders of both companies, as it provides them a more diversified oil and gas drilling exposure. Apart from getting the 22% premium on their stock holdings, Grant Prideco holders get continued cyclical exposure by owning shares of National-Oilwell Varco.

In addition, they will get the stock portion of the consideration as tax free. On the other hand, for NOV shareholders, Grant Prideco is the technological leader in drill pipe and bits and its business nicely fits into National-Oilwell's portfolio of assets.