Banking on Diebold

12/31/2004 12:00 am EST

Focus:

Elizabeth Bramwell

Senior Vice President, Sentinel Asset Management, Inc.

Following her role as portfolio manager for Gabelli Growth, Elizabeth Bramwell founded Bramwell Capital in 1994 where she manages the Bramwell funds. Here, along with research analyst Scott Worcester, she offers her Top Pick for 2005.

"Diebold (DBD NYSE) manufactures and sells automated self-service transaction systems (commonly known as ATMs), electronic security products, and election systems. All three product lines have customers globally that include financial institutions, hospitals, colleges, libraries, government agencies, utilities, and various retail outlets. The growth in revenues in 2005 is likely to be driven largely by the ATM business as replacement/upgrade plans continue.

"Banks are moving forward to make their ATMs ‘Check 21’ compliant due to new encryption requirements, Americans Disabilities Act (ADA) mandates, and new software platforms. The upgrade activity is expected to gather momentum in mid-2005 and could average two times the normal growth during the year. The strength in security products is also likely to continue in 2005 driven largely by government agencies.

"Diebold has a strong balance sheet and generates significant operating cash flow. Management’s focus on profitability and working capital is likely to further enhance cash flow from operations. With revenue growth expected in the 10-11% range for the next two years and improving margins, we estimate that the company could generate earnings per share of $3.10 in 2005 and $3.55 in 2006. Due to better than expected growth than the market, the stock could receive a premium to the market implying a forward P/E multiple of 20 times. Based on 2005 estimated earnings per share, this equates to a price of $62 and on 2006 estimates, a price of $71."

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