We have reiterated our long-term Neutral recommendation on MICROS SYSTEMS, Inc. (MCRS), which designs, manufactures, markets, and services enterprise information solutions for the hospitality and specialty retail industries.
Partnership agreements, product innovation and acquisitions underscore MICROS’ growth strategy.
The company expanded its mobile payment applications by entering a partnership agreement with VeriFone Systems Inc. (PAY”>PAY) and Tabbedout.
Simphony, an enterprise with service-oriented architecture, POS, and hospitality product supports the client in performing mission critical operations in the event of an upstream failure.
Furthermore, the company’s strategic acquisitions have enabled it to augment its systems product offerings, grow its customer base and expand market share. MICROS acquired TIG Global, which allowed the company to offer complete end-to-end solutions to hotel customers for the marketing of hotel rooms, and alternative distribution platforms.
MICROS' domestic hotel business remains weak as its scope for expansion is limited in the US. Furthermore, the rise in gas prices tends to reduce the discretionary spending of consumers, which in turn adversely affects the restaurant business.
Earnings estimates for fiscal 2011 have increased recently based on better-than-expected third-quarter results and management’s upgraded net income guidance.
We believe that recovery in vertical markets such as hotel, restaurant and retail along with the company’s efforts in streamlining its cost structure will act as positive catalysts. MICROS’ service offering Simphony and new mobile application will draw customers.
However, we are concerned about the sluggish domestic hotel business and the impact of rising gas prices on the restaurant business. Thus, we would like to be on the sidelines until we get more clarity on the recovery of businesses.
We have a long-term Neutral recommendation on MICROS. Currently, MICROS has a Zacks #3 Rank, implying a short-term 'Hold' rating.
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