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Contributors: Douglas McIntyre Jon C. Ogg

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Friday, September 15, 2006

Previewing Oracle's Earnings

Oracle (ORCL) will announce its Q1 2007 earnings on Tuesday, September 19, 2006. This will be the big tech earnings stock next week and one of the last big tech and large cap tocks to report earnings before earnings season kicks back up in four or five weeks.

The street is expecting a rise to $0.16 EPS on revenues of $3.475 Billion compared to earnings in the prior year $0.14 and revenues were $2.91 Billion. The high end of the range is $0.17 and $3.6 Billion respectively.

Oracle has offered guidance of $0.16 EPS, but $0.11 net after items. The company also gave a predicted 18% to 20% revenue rise after adjusting for acquisitions, and 22% to 24% on a net revenue basis. Prior revenue estimate revisions the street had been $3.35 Billion for the quarter ahead.

It isn't really worth evaluating the stock options yet because September options are expiring today and the time value of money for the weekend for October contracts is always higher than after a weekend. There will also be a large time value premium placed on ORCL since it will be a month before the next expiration. As of today, the open interest in the OCT $16 at-the-money Calls was not even 10,000 contracts, so not even 1 million shares equivalent on a leveraged basis.

The chart is interesting here. ORCL spent most of the last two-years trading between $12.00 and $15.00, but just in the last month it manages to get above and stay above the $15.00 range. With it now at $16.25+ it is within striking distance of its old 2002 $17.00+ highs before it went out on its buying binge. The chart is signaling that the stock needs a breather based on its recent inflows and technical readings, but we usually refuse to make calls based solely on a chart.

No one really brought up the resignation/retirement of the chief accounting officer, Jennifer Minton, that was announced in August for a November 30 effective date. She had been with the company for 17 years, and there was no indication of it being over a disagreement.

Recent Analyst Calls of Note: Bank of America maintained its Buy rating on the stock (initiated as Buy last month), but noted that the company has to Outperform estimates for it to rise much more. Bear Stearns is looking for the company to meet expectations, but offer a solid forecast; and the firm recently raised its target to $19.00. Cowen also expects in-line with forecast results. Merrill Lynch also recently maintained its Buy rating on the stock. Even Jim Cramer was just positive on the name last night in the "Lightning Round" on his MAD MONEY program on CNBC.

There may be the need to call this Oracle-Siebel-People after all of its acquisitions, but there are too many speculations out there in the software sector. We won't speculate as to who Oracle will acquire next, but you can be sure they will continue making acquisitions here and there when it can. Look at the full acquisition list here. One area that the company has been seeking more exposure in is on the logistics side of the equation, but my industry contacts indicate that the targets may be private companies. There has also been speculation on business intelligence and assets management suites, and the ongoing consolidation in security software seems to get speculated on about any company any day.

Jon C. Ogg
September 15, 2006

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