Q2 Preview: Oracle (ORCL) Faces Tough Comps, But License Revs Should Prevail

Shares of Oracle Corp. (Nasdaq: ORCL) are underperforming Tuesday heading into its second-quarter 2012 earnings release, expected out after the market close.

The Street is looking for earnings of 57 cents per share and revenue of $8.23 billion. The company reported earnings of 51 cents per share on sales of $8.6 billion in the same period last year.

Shares of Oracle moved about 12 percent higher through the quarter but are down 6.7 percent since. Oracle has traded within a range of $24.72 to $36.50 over the last year.

Excluding cash, Oracle shares are trading for 8.6x next year's earnings, compared with 16.5x at SAP AG (NYSE: SAP), and 11.9x for IBM (NYSE: IBM).

Data from Bloomberg has 36 analysts with a Buy rating on Oracle, seven at Hold, and one suggesting to sell the stock. The Street's price target average is $36.50, with a low of $33 and high of $43.

Analyst Comments

• Goldman Sachs is modeling for earnings of 58 cents per share and revenue of $9.28 billion. License revs should be $2.25 billion, and hardware revs of $1.06 billion. Goldman said checks indicate only mild disruption for Oracle from weaker budget flushes.
  
  Goldman sees third-quarter EPS of 57 to 59 cents, with license growth guidance of (5) percent to 5 percent. The firm said "this implies that consensus license forecasts will likely move lower post results. We do NOT view this as an Oracle specific event, but rather a sign of a more challenging deal closing environment coupled with conservatism in forecasting."
  
  
• Collins Stewart sees earnings of 57 cents per share for Oracle in the quarter. The firm said software license revs should be in-line with the consensus, "while hardware could see some incremental weakness."
  
  On license revs, Collins comments, "Since the Y/Y comparison in Q212 is about 200 basis points more difficult, it implies that Oracle would be able to grow about 4 percent in Q212 if demand is the same as it was in Q112. Acquisitions should add about 3 to 4 percent to this Y/Y growth for total constant currency growth of 7 to 8 percent. This compares to Oracle’s constant currency license revenue guidance of 5 to 15 percent, so it implies that Oracle would have to see only slightly better demand in Q212 as in Q112 to make the midpoint of its guidance."
  
  
• Deutsche Bank sees EPS of 57 cents and revenue of $9.275 billion. Deutsche said its checks indicate three areas of momentum: very disciplined/aggressive maintenance pricing; continued public sector demand; Exadata adoption.
  
  "Based on our recent checks around the public sector vertical, we believe that Oracle should not experience weakness, despite this being ~15% of revenue. Although the general spending environment is unfavorable, government agencies are taking advantage of allocated capital budgets to either continue or initiate projects that would enable them to cut operating expenses in forward years," according to Deutsche Bank.
  
  Looking ahead, the firm would like to see Oracle make a few more SaaS acquisitions, since M&S has become "the easiest/fastest entry route" for SaaS growth.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Oracle's past performance at Streetinsider's Oracle's Income Statement.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Walmart (WMT) PT Lowered to $130 at UBS on Investment Narrative's Competing Dynamics
• Piper Sandler Reiterates Overweight Rating on Patterson-UTI Energy (PTEN)
• Deutsche Bank monitors UK auto sales as Chinese exports grow