Oracle's Larry Ellison - Wikipedia
Triggering a powerful tech sell-off, Oracle’s earnings were below everyone’s expectations. Despite several downgrades, analysts at Caris & Co. see value in the company headed by Larry Ellison and upside given much cash on hand.
Oracle’s second quarter earnings sent the stock down 12% in afterhours trading. The miss was so bad that it sparked a generalized sell-off in tech stocks as investors worried about a generalized slowdown in enterprise IT companies. IBM, Salesforce, SAP, and EMC were all down on the day.
Despite the company having lost a lot of its luster, Caris’ Curtis Shauger thinks the stock is a buy. In a note released on Wednesday, Shauger breaks down the earnings miss. “Oracle reported 2Q results well below expectations as deal push-outs, weak hardware sales, and stronger than expected currency headwinds combined to significantly impede performance,” he wrote.
Total software license, database sales, and application license revenues all fell short of expectations. Potentially more troubling were Oracle’s “engineered systems” results. While the company boasted a 100% sales increase in its Exadata products, “these results do little to increase our confidence in what we once viewed as a potentially powerful strategy for a mega-cap name like [Oracle],” explained Shauger.
“[While] guidance does not signal demand erosion, […] it is far from confirming ongoing share gains we have grown accustomed to expect,” said the analyst, who called Oracle’s outlook “decent given [a] murky environment.”
There are a few bullish elements in the picture, though. First and foremost, Oracle has “wide exposure to enterprise and government accounts,” as Forbes’ Eric Savitz explained. Demand for its technology is not waning and it is expecting solid growth from its new, cloud-based products, as CEO Larry Ellison noted in the earnings release.
Also of importance, Oracle is also sitting on a ton of cash. With $16.2 billion net cash ($3.17 per share), management is comfortable adding an additional $5 billion to stock repurchase programs, Shauger said. The stock should stabilize as stock buy-backs and the continuation of its business brings it back to its historic levels.
The analyst maintained a “buy” rating on the stock and has a $32 price target. “We believe shares will trade to the midpoint of its historical range of 12x our CY2012 EPS estimate of $2.40 plus net cash,” said Shauger.
Shares in Oracle continued to tank on Wednesday. By 1:48 PM in New York, the stock was trading down 13.9% or $4.06 to $25.11.
