We reiterate our Neutral recommendation on MICROS Systems Inc. (MCRS). Even though a few important contract wins dominated the overall performance of the company, its failure to get rid of a few lingering downsides obstructed its exit from the precarious zone.
The major highlights of the past quarter were the continued winning and extension of projects. These included eminent patrons such as Bertucci’s Italian Restaurant, Wynn Resorts (WYNN), Ruby Tuesday (RT), etc., which averred their faith in the advanced solutions such as Table Management System (TMS), Simphony Enterprise, etc. provided by MICROS through the years.
Investors’ interests have been of utmost importance to management under any condition. Currently, MICROS has a 2.2 million share repurchase authorization that was announced in fiscal first quarter 2012. With regard to this, the company bought back 500,000 shares for $46.05 per share during its second quarter, bringing the total number of shares left to be acquired at 1.8 million.
As the company looks ahead, a few growth drivers keep management prescient of a bolstered performance in 2012. Among these is the software-as-a-service (SAAS) businesses which are looking favorable at least for the time being. Moreover, the emerging economies, especially from the Asia-Pacific region appear a haven for success in the upcoming quarters.
Even with all these approbatory factors, the scenario does not appear to be picture-perfect. Presence of competitors such as NCR Corporation (NCR), Mentor Graphics Corp. (MENT) and FARO Technologies Inc. (FARO) pose major causes of concern for MICROS to retain its position in the industry.
One factor to which we can ascribe the ongoing pervasive detrimental effects on MICROS’ performance is the latest recession. Customer expenditures have been badly hit and even though recovery is on the way, the shaky European market continues to abate revenues for the company as it traverses through 2012.
We had observed that the company had incurred nearly 51% of its sales from international operations in its fiscal year 2011. Furthermore, in its second quarter of fiscal 2012, MICROS’ international revenues accounted for about 57% of its gross sales. This over-dependence on offshore markets can have adverse effects on its own performance accruing from exchange rate instability.
We believe that MICROS needs to take a few more aggressive stances to grapple with its downsides, thus allowing us to aver a more affirmative rating on the long-term performance of its stock. In the short run, we have a Zacks #3 Rank on the stock which translates into a short-term Hold rating.
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