Oracle (ORCL - Get Report), the undisputed leader in the database software industry, gets a price target of $36, based on expectations that it can successfully broaden its offerings to become a major provider of enterprise software solutions. The acquisition of Sun Microsystems a year ago will enable the firm to further its strategy of providing complete IT services to its clients. It is operating off a strong base as software licensing updates and product support account for about 50% of its revenue and is the most profitable segment.
Goldman Sachs said in a Jan. 18 research report that it likes the company's expansion into the hardware sector for its long-term growth potential, as well as its continued profit margin expansion. And it said Oracle trades at a relatively cheap 13.1 price-to-earnings ratio based on the investment firm's 2012 earnings per share estimate. That ratio is well below the software group's median P/E of 19.4.
Standard & Poor's, which has Oracle rated "strong buy," said it expects sales to rise 31% in fiscal 2011, to $35 billion, including $7.5 billion of projected hardware systems and support sales gained through its Sun acquisition. It has a fiscal 2011 earnings estimate of $2 per share growing to $2.17 in fiscal 2012. It has a $37 price target on Oracle shares.A Morningstar analyst notes that "Oracle's revenue growth and operating profits highlight management's impressive track record of successfully identifying, buying and integrating smaller software companies." It projects a compounded annual revenue growth rate of 12% during the next five years, which includes additional revenues from the acquisition of Sun. Shares are up 4% this year after gaining 28% last year.