A Form 4 filed with the SEC has disclosed that Diebold Incorporated (NYSE:DBD)’s Executive Board Chairman, Henry Wallace, purchased 2,000 shares of the company’s stock on March 7th at an average price of $27.97. He now owns slightly more than 21,000 shares when deferred shares are included. We track insider purchases since insiders should generally be averse to increasing their company-specific risks in such a way; when they do buy more shares, it should be more likely to be due to high confidence in the stock price. It turns out that insider purchases are in fact bullish signals. Our database of insider trading filings shows that a member of Diebold’s Board of Directors was buying shares in late February; studies show that these consensus insider purchases are particularly likely- though not certain- to precede good time for the stock price (learn more about studies on consensus insider purchases). Wallace is a former Ford Motor Company (NYSE:F) executive who is also a Board member at Lear Corporation (NYSE:LEA).
Diebold Incorporated is perhaps best known among the general public for its voting machines, but it primarily provides ATMs and other self-service kiosks as well as security solutions for financial and commercial customers. In the fourth quarter of 2012, security revenue was up versus a year earlier but was offset by lower sales in financial self-service and elections sales leading to a small decrease in total revenue. On a geographic basis, the only region to see an improved top line was Europe/Middle East/Africa.
With both costs of goods sold and operating expenses growing, Diebold Incorporated reported only $7.5 million in operating income for the quarter (down from $67 million in Q4 2011) and a net loss. Earnings had actually been higher earlier in 2012 than in the corresponding period in the previous year and the stock is down 10% year to date as the market has reacted. At a market capitalization of $1.8 billion, the stock trades at 23 times trailing earnings but 13 times forward estimates as analysts expect the bottom line to recover. We’d also note that Diebold pays a dividend yield of about 4%.
What big names own Diebold, and how does it compare to its peers?
Hedge funds and other investors we track in our database of 13F filings are not very excited about the stock. Billionaire Mario Gabelli’s GAMCO Investors owned 3.5 million shares of Diebold at the end of December (see Gabelli’s stock picks). The only other filer we track with a position worth over $15 million was Royce & Associates, managed by Chuck Royce (find Royce’s favorite stocks). Because small-cap stocks such as Diebold often receive less attention from investors and the media they can be particularly likely to be mispriced, and so we are particularly sure to track hedge fund activity (the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year).
We think the two closest peers for Diebold are NCR Corporation (NYSE:NCR) and VeriFone Systems Inc (NYSE:PAY). These two companies have also been struggling on the bottom line in recent quarters (though Verifone has been recording decent revenue growth rates) and as a result their trailing earnings multiples are above 30. As with Diebold, the sell-side is quite optimistic and in fact these two companies are priced at a discount in terms of expectations for the next fiscal year with forward earnings multiples of 9 at each. Consequently their five-year PEG ratios are well below 1.
Diebold may be worth considering from an income perspective, solely because of its yield. In terms of value we aren’t sure how much weight to place on this most recent quarter looking so poor, while in the rest of the year performance seems to have been decent. We do find it appealing that analysts are very bullish on earnings for Diebold and its peers, however, and so even with the multiple insider purchases it might be wise to revisit these three companies after they have next reported quarterly results.
Disclosure: I own no shares of any stocks mentioned in this article.
