We reiterate our Neutral recommendation on MICROS Systems’ Inc. .
A solid first quarter of fiscal 2012 brought forth revenues worth nearly $257 million, rising around 10% year over year while earnings were in line with the Zacks Consensus Estimate of 45 cents per share. This was mainly attributable to shift in business, thereby targeting the high-profit sectors.
Software revenues were encouraging along with the company’s Software as a Service (SAAS) yields, which have shown favorable signs of performance expected to ameliorate in the coming quarters.
Looking ahead, management hopes to abet sales from its North American and Asia Pacific regions. Furthermore, through its Simphony offering, MICROS focuses attention on services rendered to chain restaurants which remains an area of plentitude demand.
Few important contracts were also awarded during this quarter which included providing online marketing and website building services to the Jefferson Hotel and the Plume Restaurant at the heart of Washington D.C. Besides, the signing of the agreement with Washington County Visitors Association (WCVA), catering to online marketing channel services was yet another feather in the cap for MICROS.
Even though the scenario appears to glitter quite a bit till now, there is more to the story to aver actually what lies behind the dazzle and the glitter.
Service revenues, which constitute a niche segment of earnings for the company, recorded only about $175 million in the last quarter, up 8.6% sequentially. This can raise doubts in the minds of investors as the services segment has remained the most important growth driver for MICROS.
The enervated macro environment continues to pull back demands for the company. Customers are finding it quite onerous to obtain credit which is making them rather reluctant to indulge in capital expenditures for new systems or system upgrades. Recovery measures have been prevalent for a while in the economy but disposable income is still clouded for customers, primarily in the European economy.
MICROS has giant competitors to battle in the industry such as International Business Machines (IBM - Analyst Report), Mentor Graphics Corp. (MENT - Snapshot Report) and FARO Technologies, Inc. (FARO - Snapshot Report). These contenders appear to be quite aggressive and render the task of gaining market share considerably difficult for Micros in the present economy.
We, therefore, find it wise to remain on the sidelines before averring to a more definite opinion of the company’s stock. Hence, we retain our long-term rating of Neutral for MICROS. In the short run, we have a Zacks #2 Rank, which translates into a short-term rating of Buy.