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Earnings Preview for Oracle (ORCL) 4Q 2011

June 21, 2011

Overview

Oracle (ORCL) is scheduled to report 4Q 2011 earnings after the close of trading on Thursday, June 23. The results are typically available within the first minute after the bell and will be followed with a conference call at 5:00 p.m. EST.

Outliers & Strategy

  • Back in March, Oracle provided the following guidance for the 4Q 2011 period:
    • Non-GAAP Earnings Per Share (EPS): $0.69 to $0.73 in constant currency, up from $0.60 last year.
    • Revenues: Total revenue growth on a non-GAAP basis is expected to range from 9% to 13% at current exchange rates. Based on 4Q 2010 revenue of $9.63, the projected range equates to: $10.497 BLN to $10.978 BLN.
    • The current Street estimates are for Non-GAAP EPS of $0.71 on revenues of $10.75 bln (Source: Yahoo! Finance).
  • Key measures:
    • Non-GAAP Earnings Per Share (EPS): The value for this measure is typically used to compare with consensus estimates.
    • Revenues: This value is used to compare with consensus estimates.
  • The reaction to Oracle’s earnings can have a meaningful impact on other markets, including the S&P E-Mini Index Futures & NASDAQ E-Mini Futures. Large-cap tech names such as Microsoft (MSFT) and IBM (IBM) could also be impacted by the results from Oracle. Finally, the PowerShares QQQ (QQQQ) (mirrors the NASDAQ 100) and Technology Select Sector SPDR (XLK) could be influenced by the Oracle results.
  • Oracle is now trading at just 13.35x forward earnings, a discount to the S&P 500 (13.9x) and the average price target of $38.

Recent News

  • 06/21: Piper Jaffray maintained an Overweight rating on Oracle with a price target of $37 ahead of the 4Q 2011 earnings release, based in part on strong performance for database and applications. Benzinga.com
  • 06/20: Oppenheimer reiterated its Outperform rating on Oracle in advance of its earnings release, asserting overall demand appears healthy. The firm has a $38 price target. Benzinga.com
  • 06/17: Oracle is reportedly seeking between $1.4 billion and $6.1 billion in a patent lawsuit against Google, alleging the Android operating system infringes on Oracle’s java patents. Reuters
  • 06/09: Macquarie Capital reportedly expects Oracle to deliver 4Q 2011 results well above consensus estimates, due to strong demand for products such as Exadata and its appliance strategy. The form has an Outperform rating and $38 target. Barron’s
  • 06/02: Bank of America reiterated a Buy rating and $39 price target on Oracle, due in part to the database refresh cycle and solid Exadata sales. Benzinga.com

Technical Review

Oracle shares are off about 13% from the May highs, tracking the broader market sell-off. The shares recently tested and held the 200-Day SMA near $31 – a key level to watch if 4Q 2011 earnings are seen as a disappointment. Conversely, a positive surprise could push the shares up toward initial resistance near the 50-Day SMA around $33.50. (Chart courtesy of StockCharts.com)
Summary
Oracle shares have slipped in recent months, despite evidence of strength across its business lines, particularly database and applications and solid overall demand. The sell-side community is also upbeat on Oracle, citing expansion of new products, license revenue growth, valuation, and integration of Sun Microsystems, resulting in an average target of $38. Expectations surrounding Oracle are therefore fairly high, despite the recent sell-off, leaving the shares vulnerable to any missteps in the earnings release.
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