Confidence Growing in Oracle's Quarter

Barring a last-minute surprise, Oracle is likely to meet its guidance and squeeze out a bit of revenue growth for the quarter ending Feb. 28.

CFO Jeff Henley said as much last week in Australia, and sell-side analysts for several major brokerages have written notes supporting the company this week.

However, Oracle typically closes major deals at the very end of the quarter, so this one could go right down to the wire.

Analysts polled by Thomson Financial/First Call expect the company to earn 10 cents a share on revenue of $2.31 billion in the third quarter of fiscal 2003, compared with 9 cents (pro forma) and $2.23 billion in the year-ago quarter. Last month, the company said it was comfortable with those estimates.

The company expects year-over-year license growth to range from -5% to 5%, revenue growth from zero to 4% and earnings per share of 9 cents to 10 cents.

Although Oracle is generally seen as a bellwether technology stock, any success this quarter does not necessarily indicate a general upturn in technology, said First Albany analyst Mark Murphy, whose company has no banking relationship with the software company.

Major factors working in Oracle's favor, he says, include:

A sense that Oracle's database might finally start seeing some pent-up demand as older pricing plans expire. That's because Oracle created a "glut" in databases by selling licenses ahead of a company's need, a practice since stopped.

Strength in federal government spending is likely to benefit Oracle disproportionately because the company is already an entrenched supplier to the government.

Better database sales recently from Microsoft(MSFT - Cramer's Take - Stockpickr) and IBM(IBM - Cramer's Take - Stockpickr) could foreshadow improvements for Oracle.

In a note this week, analyst Jason Brueschke of Pacific Growth Equities said that Oracle's newly reorganized North American salesforce will be more focused than in the past, and should be able to boost sales of Oracle's 9iAS Application Server. He also expects better sales for the company's collaboration suite in the second half of the year.

Despite those points in Oracle's favor, Brueschke initiated his coverage cautiously, saying, "We believe, however, that the company is fairly valued at the current price, and we therefore initiate with an equal weight rating." His firm has no banking relationship with Oracle.

Aziz Hamzaogullari, lead software analyst for Evergreen Investments, which owns 16 million shares of Oracle, has a positive long-term view of the company, and believes that Oracle can trade in the $16 to $18 range within 12 to 18 months. During regular trading on Thursday, Oracle gained 17 cents, or 1.46%, to $11.89.