Oracle Set to Soothe Investor Jitters

Updated from 6:59 a.m. EDT SAN FRANCISCO -- Reinforced like a double-hulled ship, Oracle(ORCL Quote) isn't looking for any port in the recent economic storm.

And relative to the current market drama, the company's third-quarter earnings report after Wednesday's closing bell should be smooth sailing.

"I'm expecting a good report out of them, more or less in line" with estimates and across all business lines, says Andy Sheridan, senior tech analyst and portfolio manager at AIG SunAmerica Asset Management. "It should be a pretty solid quarter."

Analysts polled by Thomson Financial are expecting the Redwood Shores, Calif., company to post revenue growth of 23% to $5.42 billion and EPS, excluding items, of 30 cents.

News You Need: Deutsche Bank, Oracle

Oracle will likely report license revenue growth of 15% to 25%, in line with the company's guidance, Sheridan says. But the software conglomerate probably won't exceed the Street's overall quarterly estimates, as it has in recent quarters, because of market conditions, he added.

SunAmerica Equity Funds bulked up on Oracle in late 2007: It held 323,900 shares at the end of the year, up from 134,300 six months earlier, according to filings. That bet paid off, as Oracle shares climbed nearly 20% in the second half of 2007.

But the stock closed Tuesday at $21.08, off 9% from its early January high, and it's trading at 15 times forward 12-month earnings. The iShares S&P GSTI Software Index(IGV Quote) is also down 8.3% since the beginning of the year.

In recent Wednesday trading, Oracle was off another 28 cents to $20.80.

Oracle's three product lines are its homegrown database software, its applications business -- much of it acquired -- and middleware, which may get a boost in the coming fiscal year from new products and a large acquisition.

"While our checks are not as robust as the past few quarters," Oracle's sales and pipeline "were solid coming into the quarter, providing them with a nice cushion," Avian Securities analyst Jeff Gaggin wrote in a note Tuesday. "We think North America was in line, held back a bit by the slowing macro[-economy], and Europe was strong, helped by robust spending and currency gains." Avian may hold a position in shares of Oracle.

Oracle is probably doing "extremely well in Europe," with ongoing gains in the Asia Pacific region as well, says Stuart Williams, an analyst with Technology Business Research. Japan, India and China represented major opportunities for Oracle during the quarter, he added.

Williams is among those observers who see Oracle as a company as well-insulated from recession as a tech giant can currently be. Economic jitters in North America will take time to register on Oracle's income statement, Williams says. "The majority of [Oracle's] business is driven by the maintenance revenue." As firms renegotiate those support contracts, which extend five to six years, an economic slowdown can have only minimal impact on that revenue stream. "As the business climate deteriorates, there's a lagging impact on the total business," Williams says.

Williams anticipates very high growth across Oracle's businesses, driven by new buyouts and organic growth within its prior, integrated acquisitions. He also predicts healthy growth from renewals in the database business, as firms install the most recent upgrade and all the new options sold on top of that revision.