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Thứ Sáu, 26 tháng 7, 2013

SAP AG (ADR) (SAP): Can SAP AG Show Growth After Earnings Report? - Seeking Alpha

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The story has gone viral: "SAP AG (SAP) misses estimates" or "SAP delivers disappointing results." We should pause and ponder for a moment. Did the company grow earnings or did it miss estimates? We should think of the most important factor to investors. Is SAP expensive or cheap in line with the current growth trends? Looking behind the negative stories, the present weakness in SAP may provide a great business opportunity for investors. The company is presently valued at 19 times forward earnings, suggesting the market is expecting a moderate growth over the next few years.


SAP reported second quarter earnings of $0.97 per share. This was in line with the expectations of analysts covering the company. The figure also exceeds last year's second quarter results by 4.29%. However, SAP's revenues were $5.37 billion versus $5.56 billion expected by analysts. Consequently, the company's shares fell 2.3% in European markets. Still, SAP's net profit rose 10% to $958.14 million, a performance that makes many organizations green with envy.

The Weak Spot

The company's software licenses were the weak spot, while cloud subscription revenues increased 7% to $1.55 billion. The slowdown in China made sales in Asia to drop 9%. Despite this, SAP actually gained software market share from Oracle (ORCL) and (CRM). The company also won numerous cloud deals against Workday (WDAY). It sounds logical to assume that SAP's core business operations can drive growth opportunities. The software licenses revenue could have disappointed last quarter, but it may also provide a big boost for the company in the next few quarters.

Definitely, there are issues that will raise questions going forward, like the slowdown in the Chinese economy and the shift in spending on web-based applications. But on the other hand, SAP is reaching the most important part of the year with database products and programs that are accessible online. This sets the stage for a potentially profitable third quarter.


SAP's financials were respectable for an organization of its size, confronted by product cycle headwinds and a tough macroeconomic environment. However, its progress should not be seen in relation to the expectations of experts but in consonance with its valuation. Is the company justifying its price? This should be the main issue.


Two companies that can best be compared with SAP are Oracle and Accenture (ACN). The forward valuations of these two stocks are in the 10 to 16 range. So SAP appears to be priced slightly higher than its peers. Of course, Oracle has been growing its business through its strength in cloud. Its earnings were up 10% in the last quarterly report compared to the same period in the year prior. However, it reported sales that missed estimates. Total revenues were unchanged from the same quarter last year at $10.9 billion. That performance fell short of the $11.1 billion analysts had expected on average. Even though analysts were disappointed, it certainly appears to be an interesting pick given that it is priced cheaper than its peers.

Accenture, which helps enterprises to install SAP software, reported net revenues of $7.2 billion in its last report, an increase of 1% year-over-year. However, the revenue fell below the company's guided range of $7.25 billion to $7.50 billion. Its report showed that customers deferred decisions on short-term consulting contracts.

We can also compare SAP to Microsoft (MSFT) and IBM (IBM). Microsoft carries a forward P/E of 10.51, with analysts' expectation high enough that the five-year PEG ratio is just above 1. It is priced cheaper going forward than IBM (13.95), SAP (18.87), and Accenture (16.35). Only Oracle (10.28) offers a cheaper valuation. We note that Microsoft missed analysts' expectations in the fourth quarter report, and its stock fell 3.4%.

IBM is, in a sense, the most profitable of all the stocks we have mentioned here. On a return to equity of 82.78%, it is more attractive than Oracle (24.49%), Microsoft (30.09%), SAP (21.82%), and Accenture (66.61%). However, we should be concerned that it has a debt/equity of 190.81%, compared with 26.84% for SAP, 16.20% for Microsoft, and 18.49% for Oracle.


From a valuation standpoint, SAP AG offers investors EPS growth of 3.88 in 2014. At a 14.65% growth rate in the past five years, it has grown faster than Microsoft (11.68%) and Accenture (10.58%). Only Oracle (17.59%) and IBM (15.77%) have grown faster. SAP offers a return on equity of 21.82%, above the industry average of 16.9%. In addition to this attractive valuation, SAP also gives investors a decent dividend yield of 1.10%, just below the industry average of 1.20%. Some of the bullish money managers who have increased their stakes in the stock this quarter are Matthew Tewksbury (200%) and Matthew Hulsizer (10100%). The company's efforts to continue increasing its available products should help improve the stock in the near future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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