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MICROS Remains Neutral

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We reiterate our Neutral recommendation on MICROS Systems Inc. following mixed first-quarter results. While the top line surpassed the Zacks Consensus Estimate, the bottom line missed the consensus mark. The stock retains a Zacks Rank #3, which is equivalent to a short-term Hold rating. Moreover, a volatile economic scenario and the company’s European exposure keep us on the sidelines.

Why the Reiteration?

On Oct 24, MICROS reported first-quarter of fiscal 2014 results wherein revenues increased 4.9% year over year to $314.7 million. The year-over-year improvement in revenues was primarily attributed to strong demand across the U.S. and Canada. Earnings, on the other hand, declined 13.2% from the year-ago quarter to 46 cents per share.

The company’s wide exposure in the retail segment is a key growth driver. The retail industry ranks second among all U.S. industries, and its annual sales turnover is more than 12% of the total trade volume of all U.S.-based businesses. With a comprehensive portfolio for retail solutions, we believe MICROS is well positioned to capitalize on the growing opportunity.

Additionally, MICROS’ strategic steps to increase shareholder value through share repurchases are encouraging. During the first quarter of fiscal 2014, the company spent around $91.6 million to buy back 1.9 million shares for an average price of $49.52 per share. These continued share buybacks are likely to boost earnings, going forward.

MICROS expanded its product suites and geographical reach with acquisitions over time. With the acquisition of Torex Retail Holdings, Ltd., Fortech Italia, TIG Global and Fry Inc., the company is expected to boost its financial performance, going forward. Moreover, these acquisitions also give the company a major competitive edge and strengthen its market position.

On the flip side, the company is facing tough competition from the likes of Square, Revel, Groupon Inc. (GRPN - Free Report) and NCR Corp. (NCR - Free Report) , which are providing mobile and tablet-based offerings for the hospitality sector and cannibalizing the legacy POS workstations.

Hence, MICROS being a hardware-based POS solutions provider will lose out on market share. Moreover, the company’s European exposure and a sluggish macro-economic environment are the other headwinds, going forward.

Currently, MICROS has a Zacks Rank #3 (Hold). SanDisk Corp. is a better-ranked stock in the technology sector with a Zacks Rank #2 (Buy).

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