Shares of NCR (NCR -1.65%) rose by as much as 14.8% on Wednesday following the release of a mixed earnings report and other news. The stock reached that peak at 9:45 a.m. ET before backing down slightly to close the session with a still-impressive gain of 14.3%.
The company, which makes retail and banking equipment such as ATMs, ordering kiosks, and barcode scanners, saw fourth-quarter sales rise 25% year over year to $2.03 billion. Recurring revenues increased by 35%, making up 58% of total sales. Adjusted earnings jumped 29% to $0.76 per diluted share.
The average Wall Street analyst had expected earnings near $0.70 per share on revenue in the neighborhood of $2.07 billion. Guidance targets for 2022 pointed just below the current Wall Street consensus across the board.
The reported results were fine but not stellar, and the guidance was mildly disappointing. So why did NCR's stock surge on Wednesday?
The company also chose this moment to announce that its board of directors is executing a "comprehensive strategic review process." Potential results of such a review include spinning off underperforming assets, merging with another company, or switching up the overall business model, among other outcomes. Many investors see this type of strategic review as a precursor to management seeking a buyout offer for the whole company, and that's certainly on the table.
The board's action was motivated by NCR's lackluster stock performance amid surging sales and a successful turnaround effort, including last summer's completion of the $2.5 billion buyout of ATM specialist Cardtronics.
"While [NCR's] execution over the past three years has exceeded our goal and has been recognized by our customers, the marketplace, and our employees, our stock price has not reflected that performance," CEO Mike Hayford said on the earnings call. "We have consistently said if execution and transparency were not sufficient to improve our market valuation, we would consider taking the appropriate actions to more immediately and directly to liberate that value."
NCR shares have stuck relatively close to the returns of the S&P 500 market index over the last three years and the last 52 weeks. The stock trades at bargain-bin valuation ratios of 0.7 times trailing sales and 17 times trailing earnings. In that light, NCR's desire to unlock shareholder value makes plenty of sense.
The review is not guaranteed to result in a premium-priced buyout offer, nor in any other surefire booster of shareholder value, but it's good to see that NCR is willing to review its options. Keep an eye on this sleepy ticker as the strategic review evolves.