Q2 Preview: Investors Hoping Oracle (ORCL) Stays 'Driven' in Quarter (HPQ, SAP, IBM)


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Oracle (Nasdaq: ORCL) is trading higher today ahead of their second quarter 2011 earnings results, expected out after the market closes today. Shares are up0.85% in morning trading.

ORCL is expected to report an EPS of $0.46 on revs of $8.34 billion. Last quarter, the Redwood Shores, CA-based tech leader posted an adjusted EPS of $0.42 on revs of $7.59 billion, beating out views calling for an EPS of $0.37 with revs of $7.27 billion. For Q210, Oracle posted an EPS of $0.39 with revs of $5.9 billion, topping consensus EPS of $0.36 and revs of $5.7 billion.

Shares gained 19.8% through the quarter to $27.05. The stock is up 12.7% since the end of the quarter, and 23.7% in the year to-date.

A simple valuation pegs Oracle with a forward P/E of 13.9x FY12 EPS estimates, compared to 11.5x for International Business Machines ( IBM ), 19.4x at SAP AG ( SAP ), and 7.2x for Hewlett-Packard ( HPQ ).

Data from Bloomberg has 35 analysts with a Buy on ORCL, 9 with a hold, and one suggesting to Sell. The analyst price target average is $32, with a high of $40 and low of $24.

Oracle is looking for a non-GAAP EPS of $0.45 - $0.47, with revenue growth of 39% - 43% at current exchange rates and 43% - 47% on a constant currency basis.

Goldman Sachs reiterated their Conviction List Buy rating, with a $33 price target, noting that checks with customers and resellers continue pointing toward accelerating growth trends, which will be driven by "hare gains in the app business and strength in its traditional database and middleware sweet-spots."

They also view the company as a solid long-term play given: "(1) Its position in the secular shift to Cloud, given its critical importance to the back-end infrastructure; (2) Accelerating adoption of the company's promising Exadata appliance by a $26 bn TAM; and (3) Top-and bottom-line growth through better maintenance attach ratios and cost controls in the Sun portion of the business, as well as further acquisitions."

Wells Fargo believes will reach to the upper-end of their guidance range, based on "Exadata momentum, cyclical ERP improvement, and healthy enterprise spend." Wells is looking for revs of $8.4 billion and an EPS of $0.45. They also believe that Oracle is going to "be targeting the bulk of its re-platforming efforts at HP instead of IBM for the simple reason that IBM owns the software workloads on its machines."

Wells has an Outperform on the shares, with a valuation range of $31 - $33.

Soleil is also expecting another solid quarter, with Oracle beating their EPS estimate of $0.46 by at least one-cent. Soleil also thinks that their revs outlook of $8.31 billion, as well as the consensus view, will be too low. Specifically, they "believe that the fundamental IT spending environment, especially among large corporations, has continued to gently improve in the United States as well as in Europe, driven by Germany." Some concerns of the Sun hardware business still linger, but should be offset by Oracle's database and middleware business, as well as strength in applications.

Soleil has a Buy on the shares, with a price target of $30.

During the quarter, a jury in Oakland, CA, ordered SAP AG to pay Oracle $1.3 billion for stealing software and customer support documents, which should prove positive going forward. No word yet on whether or not SAP will appeal the verdict.

Investors will be watching for news on the Sun acquisition, which is now about one-year old, as well as support business revs (which is Oracle's bread-and-butter), hardware revs, and any plans to gain market share in the server market.

Oracle is expected to release their Q211 earnings on Thursday, December 16, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: HPQ , IBM , ORCL , SAP

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