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ORCL : NASDAQ : US$33.77
BUY
Target: US$42.00
Company description
Oracle develops, licenses and services database and middleware software, applications software, and hardware systems worldwide. The firm is the world’s second largest application software firm, and a top five systems vendor. Oracle was founded in 1977 and is headquartered in Redwood City, CA.
Investment thesis
Our research indicates that aggregate software demand improved sequentially from spring. However, there are treacherous pockets of weakness. We expect Oracle to navigate those challenges and post at least a consensus quarter.
However, it won’t surprise us if management takes the environment into consideration and guides conservatively for August. If our scenario plays out, the right strategy would be to wait to build a full ORCL position after its prints the quarter on Thursday night. Intermediate term, we expect a choppy summer for the world economy and stock market, and this typically means safe-port-inthe- storm stocks like ORCL outperform.
Estimates moved to in line with consensus for May quarter and below consensus for August. The May estimate change is primarily the impact of the sharp yen decline during the quarter, and the unguided August change reflects our view that management does not want to miss again after doing so twice in five previous quarters.
Intangible upside – what could unexpectedly pop ORCL shares. Several of Oracle’s large cap tech peers have materially increased their dividends or announced substantial repurchases (MSFT, CSCO, INTC and IBM). We believe Oracle should do the same, but we have heard nothing that indicates that such a move is imminent. However, Oracle could surprise everyone with a balance sheet/capital allocation move, in which case our suggestion to wait until ORCL prints its quarter would be late as the stock would likely pop.
Related articles
- Keep Oracle (ORCL) on Your Radar Ahead of Earnings (t3live.com)
- Oracle’s Q4 results: What to watch (pcworld.com)
