Analysts Shoot Their Arrows at Oracle

(Updated from 9:05 a.m.)

Let the analyst games begin.

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Analysts Shoot Their Arrows at Oracle

After the swirling mists of Oracle's (ORCL - Cramer's Take - Stockpickr) crystal ball revealed a future that wasn't so good and wasn't so different than its peers, Wall Street showed up en masse to pound the company.

On Thursday night, the second-largest software maker and database management kingpin announced that its third-quarter earnings would slump from earlier forecasts because product sales didn't pull up at the end of the quarter. Software companies usually count on a late-quarter sales spike, known as the "hockey stick" effect, because sales are flat for much of the quarter before jumping just as the quarter closes. But this time those orders were either scrapped entirely or delayed, causing Oracle to come in with lower estimates.

Hell hath no fury like analysts scorned.

Lehman Brothers analyst Neil Herman cut his 2001 full-year estimate to 47 cents a share from 52 cents a share. Wall Street's current consensus estimate for the year's earnings is 51 cents. Herman cut his 2002 earnings per-share estimate to 55 cents from 67 cents. Goldman Sachs analyst Rick Sherlund downgraded Oracle to market outperform, taking the stock off the firm's U.S. recommended for purchase list. He also trimmed his 2001 earnings per-share estimate to 47 cents from 51 cents and 2002 to 57 cents from 64 cents.

Merrill Lynch analyst Christopher Shilakes cut the company to long-term attractive, telling investors the company would trade off sharply during Friday's session. Shilakes did not mince words in his assessment of Oracle's current position, casting doubt the company's model could continue to grow earnings by 20%. Shilakes cut his 2001 estimate to 47 cents a share from 52 cents a share, while dropping revenue forecasts to $11.9 billion from $11.3 billion.

"The magnitude of Oracle's shortfall increases the risks in particular for software companies that rely on large deals to make their number at the end of the quarter," Lehman's Herman wrote, scolding the company for warning now. It had announced on Feb. 13 that sales would not be slowing. On that day before Valentine's Day, Oracle whispered sweet nothings into Wall Street's ear, standing by its bullish predictions for a 75% upswing in data applications revenue. But according to last night's announcement, the company only booked 50% growth in applications sales.

"Given recent Oracle management optimism, every software stock is now likely to be a show-me story over the near term with investors putting very little faith in management comments," Herman wrote. He sees upside, however, in Oracle competitor BEA Systems (BEAS - Cramer's Take - Stockpickr) -- and went so far as to suggest in a note on Oracle that investors consider its rival.

"However, for long-term investors, we believe this time period will ultimately prove to have been a buying opportunity," Herman wrote of the sector.

Expect today to be an Oracle watch day, with continuous analyst comments and a beating for the stock. It was lately off 23.1%.