RealMoney Silver - ORCL Reports Well Ahead of the Street

ORCL Reports Well Ahead of the Street
By Ben Thomas
RealMoney Contributor
12/19/2007 6:03 PM EST

Updated from Dec. 18 to include earnings results.

Oracle (ORCL) reported earnings that were meaningfully above almost all projections the Street had. For the quarter just ended, the company reported adjusted EPS of 31 cents on total revenue of $5.3 billion. License revenue came in at $1.7 billion. All three numbers are better than the expectations. The core database and middleware license revenue grew 28% vs. most Street expectations of around 15%-16%.

As for guidance, new software license revenue should rise 15%-25% year over year. Oracle says total revenue should be up 20%-23% year over year, with EPS in the range of 29 to 30 cents (the Street estimate is at 29 cents). This is obviously a fairly conservative estimate -- I would expect the company to easily exceed this estimate.

Other highlights include no deal with BEA Systems (BEAS) (Oracle couldn't reach terms, so it's dropping it). Operating income of 34% was about 100 basis points higher year over year.

The sales pipeline remains "very strong." The company continues to forecast taking share in the database business.

Overall, the company remains very bullish and suggested that it has not seen any material weakness in the IT spending environment. Global demand remains strong, and subprime worries are not having a meaningful impact yet. The company continues to do a nice job executing, and I believe the operating margins will continue to improve as the company irons out more synergies from acquisitions. Look for several analysts to talk positively on the stock tomorrow and a few to take up their EPS estimates and/or ratings.

Below is the earnings preview that was published on Tuesday, Dec. 18:

ORCL Preview: Predicting Another Solid Quarter

Oracle (ORCL) is slated to report earnings after the close on Wednesday with a conference call at 5 p.m. EST. Current projections call for the company to post EPS of 27 cents on total revenue of $5 billion. License revenue should come in around the $1.45 billion mark. I would expect the company to beat both of these revenue estimates (if for no other reason) on a strong foreign-exchange tailwind.

I believe that the company is probably doing well even on a constant currency basis. Last quarter, management suggested that the backlog and visibility were decent enough to make this quarter's guidance without too much difficulty. I suspect that the company will provide a solid report based on a decent macro environment (excluding U.S. financial services) and talk optimistically about the outlook.

Look for more improvements in margins and talk about how CIOs like the total package software offering that Oracle brings to the table.

I'm also interested in hearing management's comments on the state of the IT spending environment and whether it sees any slowdown at all. I'm curious if the company believes that there will be any pricing pressure given a little weakness at SAP (SAP) recently.

At 17 times forward estimates, the stock seems very reasonable to me. Although a lot of the recent growth has come from acquisitions, it seems the company is doing a good job executing.

At the time of publication, Thomas was long Oracle, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.

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