MSFT Microsoft Corporation

On Apr 11, 2014, we issued an updated research report on MICROS Systems Inc. (MCRS) following the company’s mixed second-quarter fiscal 2014 results. Although earnings per share missed the Zacks Consensus Estimate, the company’s revenues surpassed the consensus mark.

Notably, revenues also improved on a year-over-year basis. The improving macro condition for all its business segments, especially software and strong sales implementation were responsible for the 6.5% increase in revenues. Also, the year-over-year expansion was driven by strong growth in terms of both geography and verticals.

Moreover, the company’s newly introduced product ranges and best-in-class services are likely to cater to increasing demand in the industry and boost revenue streams, going forward. MICROS also launched mTablet, which generated widespread interest in its devices from different domains.

To cater to this demand, MICROS will launch two low-priced tablets in collaboration with Microsoft (MSFT), Dell and Hewlett-Packard (HPQ). We believe that the recent collaboration will help the company to increase its revenues from hardware business and to cross sell its products across verticals, particularly in retail.   

Furthermore, MICROS has expanded its product suites and geographical reach with acquisitions over time. The acquisition of Torex Retail Holdings, Ltd., a supplier of software solutions to the retail segment, has helped the company to extend its presence in Europe. The company also acquired Fortech Italia, TIG Global and Fry Inc. We believe that these acquisitions will add value to MICROS’ existing portfolio and will give the company a major competitive edge and strengthen its market position.

Also, MICROS’ strategic steps to increase shareholder value through share repurchases are also encouraging. During the first six months of fiscal 2014, the company spent around $111.3 million on share repurchases. MICROS has approximately $95.9 million available for purchase per the Apr 2013 authorization agreement. These continued share buyback plan is expected to support the company’s bottom line going forward.

On the flip side, the company is facing competition from the likes of Square, Revel, Groupon Inc. (GRPN) and NCR Corp., which provide mobile and tablet-based offerings for the hospitality sector and cannibalize 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 #2 (Buy).
 

 
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