In the second positive note on

Oracle

(ORCL) - Get Report

this week, J.P. Morgan initiated coverage of the software company Wednesday with an overweight rating, saying it is poised to outperform in a still-sluggish sector.

J.P. Morgan analyst Adam Holt said he believes a broad sales-force restructuring first undertaken by Redwood Shores, Calif.-based Oracle 18 months ago has begun to yield results, especially in its once-struggling applications business. Oracle also will release a new version of its core database product in September, although that market is maturing and industry reports show Oracle has lost share to

IBM

(IBM) - Get Report

and

Microsoft

(MSFT) - Get Report

.

In addition, Holt said he believes Oracle should benefit from a trend he has noticed: the convergence of applications and infrastructure. He concludes that the company should be able to drive revenue growth of 4% to 8% in a flattish IT environment. (His firm does banking business with Oracle.)

Holt wrote that Oracle is tracking to meet his estimates for 5% top- and 14% bottom-line growth in the fiscal first quarter, which ends this month. The company's guidance was for revenue growth of 4% to 7% year over year, or a range of $2.1 billion to $2.17 billion, with license growth of 2% to 12% year over year, or $574 million to $630 million. The company, which said business in every region should grow, forecast earnings at 7 cents to 8 cents a share, vs. 7 cents in the year-ago period.

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The consensus estimate gathered by Thomson First Call calls for Oracle to earn 8 cents a share on $2.14 billion in revenue.

With a price-to-earnings ratio of 24 times Holt's 2004 earnings estimate, Oracle is trading at a discount to its peers, which average 29 times earnings, he said. Yet Oracle boasted a 36.3% operating margin in fiscal year 2003, the third-highest in software behind Microsoft and

Check Point Software

(CHKP) - Get Report

.

Holt acknowledged some investors doubt Oracle's business beyond its slowing database market and the integration risk associated with the hostile

PeopleSoft

(PSFT)

takeover. But Holt adds, "We expect revenue and earnings growth to accelerate to the high single to low double digits as the company rolls out new products and the economy improves, showing generally better growth than the sector, and much higher than average operating and EBITDA margins."

Holt's note came two days after Merrill Lynch analyst Jason Maynard upgraded his rating on Oracle Monday to a buy and raised his estimates. Maynard noted that Oracle has traded off more than 17% in the last two months without any material change in fundamentals, probably because of disappointment over the inability to resolve the PeopleSoft merger sooner. His firm has done banking business with Oracle.

Maynard agrees the company is tracking to meet estimates for the first quarter, which is typically the company's slowest. It would be the first time Oracle showed first-quarter revenue growth since 2000, the third consecutive quarter of year-over-year revenue growth and the second consecutive quarter of license-revenue growth.

Despite its mature database business, Maynard said, Oracle is in a position to do well as sectors such as telecommunications, financial services and government spending break out of the doldrums because they account for about 40% of sales.

"Given our higher levels of confidence that software spending should gradually improve along with better field execution, we believe Oracle's shares are poised to move higher in the coming quarters," Maynard wrote.

Shares of Oracle declined 14 cents, or 1.1%, to $12.02 in recent trading.