Oracle Corporation: In-Line Quarter Expected, Catalysts Ahead

Oracle Corporation: In-Line Quarter Expected, Catalysts Ahead
By Sanatan2014 (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Oracle Corporation (NYSE:ORCL) ends its first fiscal quarter of 2015 this week and is scheduled to release its earnings report on or around Sept. 17. Sterne Agee analysts think the results will be “lukewarm” at best but that some catalysts for Oracle stock will appear by the end of the year, supporting “rotational opportunity.”

In the last quarter, Oracle disappointed investors by missing expectations for both revenue and earnings. As a result, the company’s shares slumped by about 4% overnight. Since that point, the stock has been trading within the same $40 to $42 per share range.

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What to expect in Oracle’s earnings results

In a report dated Aug. 26, 2014, analysts Robert Breza and Jean-Baptiste Jouve said their conversations with integrators and resellers suggest that Oracle’s earnings will be in line with estimates. Their discussions suggested good demand in database and middleware, although seasonally slower new application demand seems to have offset this.

On the last conference call, Oracle management guided for first quarter revenue between $8.716 billion and $8.884 billion. The Sterne Agee team projects a result closer to $8.75 billion, which would represent a year over year growth rate of 4.4%. The company guided for earnings of between 62 cents and 66 cents per share. Sterne Agee analysts are looking for earnings of 64 cents per share.

Oracle a “positive rotational idea”

The Sterne Agee team believes that Oracle is still a solid “rotational ideal” for investors in large-cap, legacy software companies. They note that the company expects to see accelerating growth in revenue and an expansion in operating margin. Oracle’s 12c-in-memory database product cycle also supports their thesis.

The analysts believe that the next few months will end up being “rich in catalysts” for Oracle, once again interesting investors in the stock, especially when compared to other software names like Microsoft Corporation (NASDAQ:MSFT). They say one catalyst is the closing of the MICROS Systems, Inc. (NASDAQ:MCRS) acquisition. That will enable Oracle to further expand in Retail Corporate technology. It will also push incremental growth, which will result in management positively adjusting guidance.

They add that the 12c multi-tenant in-memory database Oracle released in the last quarter should offer strong renewals and additional middleware and Fusion application module sales. They’re expecting to hear positive commentary on the topic on the earnings call, even though it’s early in the release. In addition, they think investor interest will be renewed by this fall’s Oracle World conference as the company shares more details on new and upcoming products.

Sterne Agee analysts have a Neutral rating and $41 per share price target on Oracle.

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