Sunday, April 26, 2009

MICROS Systems, Inc.

MICROS Systems, Inc. (MCRS), is the world's leading developer of enterprise applications serving the hospitaliy and specialty retail industries. MICROS serves table service and quick service restaurants, hotels, the leisure and entertainment industry, and speciality retail stores with complete information management solutions including software, hardware, enterprise systems integration, consulting and support. The company distributes its products through subsidiaries, independent dealers/distributors, and company-owned sales and service offices around the world. This global network consists of over 4,600 employees, more than 80 wholly or majority-owned subsidiaries and branch offices in major markets and 115 distributors in 45 countries.

MCRS operates in highly competitive markets, which include at least 20 significant competitors offering sophisticated restaurant point-of-sale systems. Another concern is the foreign exchange risk, since a substantial portion of the company's revenues are generated abroad.

The company responded to the worldwide recession by reducing costs through layoffs and other cost-cutting measures. In fact, gross margin for the twelve month period ending December 2008 expanded to 52.7% as compared to 52.5% in the fiscal year ending September 2008. Operating margins expanded to 15.4% compared to 14.6% and net margin went to 11% from 10.6% during the same periods.

At the moment, the company's EPS TTM is $1.30 and estimated EPS for 2009 currently stands at $1.32. The conference call scheduled for the end of April may shed some light on short term trends. However, the company does have a history of positive earning surprises. A Jeffries & Co. analyst recently raised his target price for MCRS to $25 from $18. Analyst earnings estimates for the FYE 6/10 range from $1.34 to $1.55. Measured Approach estimates earnings for FYE 6/10 to be as high as $1.91. We believe the current disaster for the hospitality industry worldwide will result in great opportunities for MCRS.

Growth...............TTM.....3 Yr.....5 Yr
Sales.................10.6%..16.9%..18.6%
Gross Income......10.8.....18.4.....20.3
Net Income.........16.5.....23.4.....35.8
EPS Basic...........17.7.....19.5.....31.7
Cash Flow...........18.8.....20.3.....26.8

Multiples
Price/Earnings............15.9
Price/Book..................2.5
Price/Sales.................1.7
Price/Cash Flow.........13.6
Price/Free Cash Flow..12.5

Ratios
Gross Margin %...............52.7
Operating Margin %..........15.4
Net Margin %..................11.0
ROE%............................16.2
ROA%............................10.9
Current Ratio....................2.5
Liabilities to Assets %.......29.9

We place a target value on MCRS of $31.71 which represents a P/E of 16.6X our estimate of FYE 2010 EPS of $1.91. We project FYE 2010 free cash flow of $2.52 which translates to 12.58X multiple.

Disclosure: At the time of this writing, author had no financial interest in any security mentioned.



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