The Value Line Investment Survey

MICROS Systems is a designer, manufacturer, and marketer of information products and solutions. Customers are primarily in the global hospitality and retail industries. The company provides point-of-service (POS) and loss prevention products for retailers, as well as property management systems, central reservation, and customer information technology used by hotels, motels, and other leisure & entertainment operations.

MICROS stock has established a good, albeit uneven at times, track record this decade. A string of new contract wins augurs well for revenue and earnings. The equity is ranked 1 (Highest) for Timeliness. Agile investors focused on the coming six to 12 months might want to make a commitment.

A Shift to Software

Management is altering its strategy, placing a greater emphasis on software solutions, as opposed to traditional hardware offerings. Hardware operations entail higher cost of goods. This shift, along with upgrades to marketed systems, is yielding wider profit margins. Corporate customers have found the mix change appealing. Indeed, MICROS has reached an agreement with Burger King Corp. to supply a suite of solutions to enhance the productivity at 775 company-owned stores. Too, Big Boy has selected the MICROS e7 POS solution, which will upgrade current systems at 165 U.S. restaurants to comply with the Payment Card Industry Data Security Standard.

Given the steady stream of incoming business, we project firm double-digit revenue and net profit gains to 2011- 2013. MICROS is well situated to weather a recession, if one should arise. Notably, MICROS recently enhanced its partnership with Planet Payment by modifying POS applications to support that company’s credit processing platforms. This move may well lead to new business in the Asia/Pacific market, diversifying risk and supporting longterm operating performance.

The Leisure Market

Slowing economic activity and heavy competition are prompting hotel and leisure chains to selectively expand their facilities and improve processes. Many members of this industry have turned to MICROS for solutions. For example, Las Vegas Sands Corp. implemented the MICROS 9700 Hospitality Management Systems at its Palazzo Las Vegas resorts unit. Also, Danubius Hotels, an international entity, has decided to utilize the MICROS 9700, OPERA central systems, and myfidelity.net interface solutions to improve management of all 56 of its hotels. Furthermore, Omni Hotels will use the OPERA suite to better its reservations and POS functions. A well-balanced mix of domestic and foreign leisure business helps to lessen the impact of almost any downturn in one region of the world.

Boosting Value

Cash flow is advancing nicely, and MICROS is returning a portion of the funds to shareholders via share repurchases. On point, the company is now in the midst of a multiphase common share buyback program, which is helping to support earnings growth. (Note: A 2-for- 1 stock split was paid on February 5th, 2008.) Meanwhile, management has the option of pursuing additional acquisitions, given MICROS’ ample free cash flow and favorable share price. Any deal making would probably be focused on enlarging the software business.

MICROS is a technology business that needs to adequately fund research & development to maintain a favorable competitive position. So far, the company has executed well. Finances are solid and the stock is not overly volatile, as reflected in the Safety rank of 3 (Average).

John D. Burke
Analyst