SAP: A Beacon In A Sea Of Darkness

| About: SAP AG (SAP)

This past Saturday, SAP AG (NYSE:SAP) announced it was acquiring SuccessFactors (NYSE:SFSF), a cloud HR software provider, for $3.4 billion. Although this is a 52% premium to SuccessFactor's Friday close, this allows SAP to "establish an advanced end-to-end offering of cloud and on-premise solutions for managing all relevant business processes" according to its press release.

There is a legitimate reason why SAP was willing to pay such a premium. SAP understands the value of an enhanced presence in cloud computing, and this merger agreement will add momentum to SAP's cloud services-- an advantage that will prove crucial-- especially in a sector saturated other heavyweights such as Oracle (NASDAQ:ORCL), IBM, and Microsoft (NASDAQ:MSFT).

SAP is a German developer and provider of business software. Yes, it is a European company. However, the huge fiscal fiasco in the eurozone, one which has taken down Greece and is paralyzing Spain and Italy, has surprisingly left SAP unscathed. Take, for example, SAP's most recent earnings report. In the middle of the European sovereign debt crisis, the German business software developer reported that revenue rose 14% to about $4.7 billion, with gains of 26% in Europe, 35% in the U.S. and 42% in the Asia-Pacific region. SAP's software license sales, a reliable gauge of customer sentiment, increased 28% to about $1.2 billion.

From a CAN SLIM approach, SAP is a very attractive stock, one which now suddenly finds itself with a catalyst in the form of the SuccessFactors acquisition. SAP's 2011 3Q Earnings Per Share was up 35% from last year's 3Q EPS, and its 3Q earnings blew away analysts' estimates by 59%. The average EPS Growth for SAP's last 3 quarters is a solid 35%, and its current EPS estimate for 4Q is up 19% from the EPS of the same quarter last year. SAP's estimated annual earnings growth for this year is up 13.48% from last year's earnings.

SAP has zero debt and a healthy Annual Return On Equity (ROE) of 28.7%. Its annual Pre-Tax Margin is 29.8% and the 2011 3Q sales increased by 12% from last year's 3Q sales. Although SAP has a paltry 3% 3 Year Sales Growth Rate, it is steadily gaining market share, a development which-- compounded with its acquisition of SuccessFactors-- could very possibly result in a winning stock. Also, SAP holds a commanding lead over some of its much bigger competitors such as Microsoft and Oracle in several target markets; according to fellow Seeking Alpha contributor Brian Bleifield, SAP holds 24% of the market share in enterprise resource planning, compared with Oracle's 18% and Microsoft's 11%.

I strongly recommend looking into SAP as a potential addition to your stock portfolio. SAP has shown itself to be a very progressive company, one which has recently experienced accelerating growth, especially in its third quarter. It has not been significantly adversely impacted by the European sovereign debt crisis, and it stands to gain an increasing foothold in the cloud services market with its acquisition of SFSF. Combine this with its commanding market share of enterprise resource planning and its surpassing of the vast majority of CAN SLIM criteria, and you can see why SAP-- one of the rare European companies that continues to shine in the midst of a sea of darkness-- is poised to prosper.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SAP over the next 72 hours.

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