Here is the full summary:
SAP is focusing on growth in mid-market and smaller companies by grappling with the related industry trends of both architecting its next generation service oriented architecture [SOA] and deploying the resulting software as a service (SaaS). The complexity of that two-pronged task makes 2007 a building year in Waldorf. SAP has emphasized publicly that it will not reach “volume readiness” in SaaS (and implicitly SOA) until 2008. There appears to be little if any optimism built in to the current share price regarding SAP’s ability to leverage these recent industry trends. SAP stock has dramatically underperformed both Oracle and Salesforce.com (CRM) by a wide margin over the past few years.
We want to be clear however that SAP’s dominance of large enterprises is quite secure and profitable owing in major part to its comprehensive industry-centric application functionality. Our analysis suggests that the strategy SAP has for long-term growth is credible but that it will take some time to be reflected in operating results. The current company valuation appears to underestimate the value of the SAP franchise, its dominant market share in applications, and its current strong financial position. Our long-term valuation methodology suggests a share price of $52 if the company can be moderately successful in executing its plans.
SAP 1-yr chart:
