ORCL: Buy on Dips as it Heads for the Cloud

NEW YORK ( TheStreet) -- The most active stock reporting earnings the week of June 18 is Oracle ( ORCL).

Oracle is one of the world's leading suppliers of software for information management and is headquartered in Redwood City, Calif. Oracle trades an average of 29.4 million shares per day with a marketcap of $134.5 billion.

Oracle is anticipated to report better fourth-quarter earnings after market close on June 21. The consensus estimate is currently 76 cents a share, an improvement of 3 cents (3.9%) from 73 cents during the same period last year. Oracle beat estimates in three of the last four quarters, including the last quarter by 10%.

More than half of analysts surveyed in the last week rate Oracle a strong buy. The average analyst 12-month price target is $33.90, and increase of about 24% over Tuesday's close.

For the same fiscal period year-over-year, revenue has improved to $35.62 billion last fiscal year compared to $26.82 billion in the previous year. The bottom line has a dramatically rising earnings year-over-year of $8.55 billion last fiscal year compared to $6.14 billion in the previous year. Oracle managed to increase both the top and bottom line each of the last five years.

The trailing 12 months price-to-earnings ratio is 11.8 and the mean fiscal year estimate price-to-earnings ratio is 10.5, based on earnings of $2.55 per share this year. Oracle pays a small dividend of slightly less than 1%, but with a 13% payout rate, the dividend isn't in peril. For a company that is consistently growing revenue and per share earnings, it isn't priced like a growth company.

The smart money isn't betting against Oracle, even though they would have been correct last year. Short interest is less than 1%. For as weak as technology has performed, a higher short interest would not surprise me. Short interest has actually fallen from a month ago.

Compared to some of the industry, Oracle's stock performance is lagging behind. Based on technical analysis, Oracle is in a bear market based on the price trading below the 200-day moving average along with both the 60-day and 90-day moving averages. Considering the stock is trending lower, the lack of short interest is even more striking.

From a cost-to-earnings point of view of peers, Oracle is in the middle. IBM ( IBM) is trading for 11.67, Microsoft ( MSFT)at 9.56, SAP ( SAP) 16.1 and Hewlett-Packard ( HPQ) at 4.9. HP has its own set of problems impacting the price; however, the overall weakness can't help but spill over.

Microsoft's chart is more impressive to me because at least it is still managing to hold onto a bullish price above the 200-day moving average. SAP is oversold and if Oracle beats earnings look for SAP to bounce higher.

Oracle recently tapped into its $30 billion war chest and went shopping. Oracle entered into agreements to buy Collective Intellect and Virtue. Both companies support cloud-based social intelligence gathering and management.

Oracle isn't the only one with the checkbook out and pen in hand. IBM recently finished the purchase of Tealeaf Technology. Tealeaf is a spin-off company from SAP.

Amazon ( AMZN) and Microsoft are also in the cloud space and Amazon has recently increased their payroll, assumedly to step up enterprise level support for Amazon Web Services. Amazon and Microsoft have gone toe to toe with pricing and the storm clouds of a cloud price war are on the horizon. (Read my Amazon article addressing Amazon and its lofty valuation.)

As long as Oracle can continue to execute, I like buying on dips and especially selling covered calls to hedge with. An investor considering Oracle may want to short put options before the earnings release to capture the elevated premium too.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Author does not hold a position in any stock mentioned.