Analytics is an under-appreciated component of Big Data, but one that companies like IBM (NYSE:IBM) and SAS have targeted as key growth areas. Although Israel's NICE Systems (Nasdaq:NICE) is perhaps better known for its surveillance and security applications, enterprise interaction and transaction analysis looks like an increasingly valuable addressable market for the company.
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
OK Performance, but Orders a Concern
NICE Systems did alright for the first quarter, as revenue rose 15% enterprise revenues rose 16%, while security revenue rose 11%. Margins were not especially strong, though, as GAAP gross margins fell more than three points and operating income dropped 45%. On a non-GAAP basis, operating income kept pace with revenue at 15% growth.
These results were consistent with analyst expectations, as was management's guidance, but orders did soften to a point where the company's book-to-bill slipped below 1.
SEE: Understanding The Income Statement
Data Analysis Is Where Value Is Created
There's no question that companies like EMC (NYSE:EMC) and NetApp (Nasdaq:NTAP) have made quite a lot of money from selling equipment to store data. Likewise, companies like Oracle (Nasdaq:ORCL) and SAP (NYSE:SAP) have built large businesses on the back of software that organizes, sorts and manipulates that data to inform or support business decisions.
It's all well and good to collect, save and sort data, but the real value comes from figuring out what the data really means and how companies can use it to improve their operations. With NICE, that means capturing data from phone calls (voice logging), email, chat or IM and so on and then analyzing that interaction and transaction data.
Call centers can use this information to reduce wait times, improve customer satisfaction and retention or even inform real-time sales floor decisions. It's also useful in fraud detection, and NICE has been looking to sell more of its analytical solutions to commercial banks, investment banks and other financial institutions.
SEE: Earning Forecasts: A Primer
NICE Would Make a Nice Fit
I'm a little surprised that NICE is still an independent company. With Verint (Nasdaq:VRNT), it's one of two companies that sell voice logging and analysis solutions. Moreover, as companies like IBM, Oracle and SAP all look to improve their analytical software and service capabilities, this would seem like a natural fit.
Consider the case of IBM. IBM already sells mainframe systems, servers, storage equipment and an array of software solutions, not to mention extensive consulting services. It would seem that NICE Systems' solutions would naturally fit into the ecosystem and allow IBM to offer an even more robust array of analytical capabilities to its customers.
The Bottom Line
Given the rate at which companies are accumulating data, it seems reasonable to project strong ongoing demand for analytical solutions. While NICE's GAAP-based fundamental valuation metrics look high, the stock actually looks undervalued on a discounted cash flow basis. Even with just modest high single-digit free cash flow growth, NICE shares could be worth over $50. Although the company is vulnerable to the somewhat cyclical enterprise IT market, ongoing demand for data and data analytics suggests this is a stock worth further investigation.
SEE: 5 Must-Have Metrics For Value Investors
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
EconomicsWill remaining calm and staying long present significant risks to your investment health?
Stock AnalysisIs DKS a bargain here?
Investing NewsA third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
Stock AnalysisHome Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
Stock AnalysisYelp investors have had reason to be happy recently. Will the good spirits last?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>