Oracle's ( ORCL) profit will easily pay for its shiny new quarterly dividend of 5 cents a share.

Analysts expect the database software giant to increase per-share earnings 32% to $1.40 in the year that ends in May. Next fiscal year, they predict profit to grow 8% to $1.51. Oracle will easily cover the 20-cent annual dividend payout.

Before Oracle surprised investors with its dividend announcement, Ratings' quantitative model had graded the stock B-minus, a recommendation to "buy." The model analyzes companies' stock prices and financial positions, and the growth expectations of analysts.

Based on those estimates, Oracle is trading at a modest 11 times this year's projected net income and 10 times next year's earnings forecast. The company earned a B-plus "reward grade" from Ratings, reflecting its growth prospects, low price-to-earnings ratio and ability to generate $7.4 billion in cash flow from $22.4 billion in annual revenue. Volatility in its stock price held its "risk grade" lower at C-minus.

"Buy" recommendations aren't easy to come by these days. The model gave software firms Microsoft ( MSFT), SAP ( SAP) and Adobe Systems ( ADBE) "overall" grades in the C range, which amount to "hold" recommendations. Overall grades for stocks range from A-plus to E-minus, with bankrupt firms earning F grades.

On Wednesday, Oracle said its fiscal third-quarter earnings rose 3% to $0.26 from a year ago. Profit would have climbed 29% if the U.S. dollar hadn't strengthened, devaluing money earned abroad. The company has also been actively buying back stock.

The company's shares, which topped $45 in 2000 during the tech-stock bubble, tumbled to less than $10 two years later during the subsequent crash. They topped $23 last summer before backing off to the mid-teens in recent weeks.

Oracle Prophecy: Earnings Growth
Company ORACLE
Ticker ORCL
Industry Software Ratings Reward Grade B+ Ratings Risk Grade C- Ratings Overall Grade B- Ratings Recommendation Buy
Recent Price 15.56
Latest Fisc. Yr. Revenue ($Mil.) 22,430.0
Market Cap ($Mil.) 78,518.5
Total Assets ($Mil.) 47,268.0
Total Debt ($Mil.) 11,236.0
Earnings Before Interest & Taxes ($MiL.) 8,009.0
Cash Flow from Operations ($Mil.) 7,402.0
EPS - Latest Avail. Fiscal Yr. 1.06
EPS - Curr. Year Consensus 1.40
EPS - Next Yr. Consensus 1.51
Price/Book Ratio 3.4x
Ret'n on Equity (%) 25.2
P/E - Current Year 11.1x
P/E - Next Year 10.3x
Source: Ratings (Data as of 3/13/2009).
For an explanation of our ratings, click here..
Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.