On Monday, Goldman Sachs (NYSE:GS) initiated coverage on NCR (NYSE:VYX) Atleos Corp. (NYSE:NATL) with a Neutral rating and a 12-month price target of $23.00. The company, a leading provider of ATM hardware, services, and software, is recognized for its vertical integration, which is seen as a significant competitive edge. This integration supports opportunities for cross-selling and upselling, potentially increasing market share.
NCR Atleos is transitioning to an ATM-as-a-service (ATMaaS) model, which bundles hardware, software, and maintenance with back-end services in a single subscription contract. This strategic shift is expected to expand the company's addressable global ATM solutions market from the current $10 billion, where NATL holds a 40% share, to an estimated $25 billion. The expansion is anticipated as the company aims to capture a larger portion of banks' in-house spending through a more comprehensive range of services.
The firm forecasts that this business model transformation will likely accelerate revenue growth from low-single digits in 2024 to mid-single digits by 2025. Additionally, NCR Atleos' EBITDA margins could expand from the high teens to mid-20s by 2027. Despite these positive prospects, the firm notes potential near-term revenue headwinds in hardware due to the transition to ATMaaS, which currently represents only 4% of the company's total revenue.
Goldman Sachs acknowledges that there are execution risks associated with the shift to ATMaaS. The company's current valuation is believed to reflect these risks, along with factors such as lower growth and margins, higher financial leverage, and lower free cash flow (FCF) conversion compared to its peers.
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