Oracle Corporation Earnings Expectations Set Low

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Oracle Corporation (NYSE:ORCL) is scheduled to release its next earnings report this week, and analysts aren’t really expecting much of a surprise, either to the positive or to the negative. The company disappointed on its last earnings report, and shares have tumbled since then and remained range-bound.

Oracle’s results expected to be in line with estimates

In their report dated Dec. 15, 2014, Sterne Agee analysts Robert Breza and Ryan MacDonald said their channel checks since the last earnings report suggest Oracle’s report will be in line with expectations. They note the company has an easy comparison, which should help, although sentiment on Oracle shares remains low.

For Oracle’s second fiscal quarter, they’re expecting revenue of $9.475 billion and earnings of 70 cents per share. That’s compared to the consensus estimate of $9.503 billion and 68 cents per share in earnings. The Sterne Agee said the drivers of their differences with consensus are slower new software licenses and better cost controls.

Their estimate for Oracle’s third fiscal quarter is in line with consensus estimates of $9.685 billion and earnings of 73 cents per share. They expect management’s guidance to be in line with those numbers as well.

Oracle estimates by segment

The Sterne Agee analysts are expecting Oracle to post $2.092 billion in new software license revenue, compared to $2.383 billion in the same quarter last year. In software licenses, they expect $4.805 billion in revenue, compared to $4.517 billion in last year’s second fiscal quarter.

They project service revenue of $1.348 billion, a 28% increase, and hardware revenue of $1.23 billion, a decline of 7%. Their checks suggest demand for Oracle’s products is strong in North America, particularly for its database and middleware products. They say demand Europe has shown to be soft, however, for new software and applications.

Investors are bearish on Oracle

Oracle shares closed at $39.80 per share on Sept. 19, the day after the disappointing first fiscal quarter earnings report. Since then, shares have remained range-bound at between $38 and $42. The Sterne Agee team said investors are simply waiting for a catalyst like signs of growth.

They believe the majority of investors have low expectations and that new investors are staying out of Oracle stock until the company starts showing internal growth again. However, they note that headwinds from foreign exchange rates will likely weight on the company’s results while it improves execution.

Sterne Agee has a Neutral rating and $41 per share price target on Oracle. As of this writing, shares of Oracle Corporation were up 3.5% during regular trading hours.

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