Why Is Oracle Off More Than Other Tech Stocks Ahead of Earnings

Out of the ‘Horsemen’ stocks, Oracle (ORCL) is the only on that has actually pulled back more than 10% from its recent post-earnings highs.  ORCL is up 2.3% today to $18.09, but shares closed at $17.68 Friday and were down to $17.50 in early December.  From the November intra-day high of $19.75 and high close of $19.66, the stock was down 10%.  So while it has been hitting on all cylinders and finally proved to the world that its endless acquisitions let the company win, the stock has been acting as though it was capped. 

That may be because the recent highs were post-bubble and 5-year highs, but this is still the only one of the big volume Horsemen stocks that has seen a 10% pullback.

Here is the list of other pullbacks off of recent highs, but understand that trying to use all-time highs or highs back before 2001 may show different readings:

Google (GOOG) pulled back 8% or so, stock recently at all-time highs.  Cisco (CSCO) hardly off highs at all, close to multi-year highs.  Microsoft (MSFT) hardly off highs at all, close to multi-year highs and not including dividend adjustments.  Intel (INTC) INTC is only off 6% from recent highs, and that is even with all the chip stocks in the sector warning.  Apple (AAPL) since hitting $93 it has only pulled back about as much as 8% from its recent highs.  Yahoo! (YHOO) has pulled back 10% at the extreme point but it much higher.  Yahoo! is in the midst of a turnaround that has yet to turn so comparing this may not even be fair to include it in the same piece.  Even if you go to the direct competitor SAP (SAP-AND/NYSE) the stock is only about 4% off of current quarter highs, although it is down roughly 10% from its 52-week highs from before the summer.

So what you have to ask is this: Is all the good news priced in and is the street bracing for bad news, OR did the street just sell it off more than the others for other reasons that aren’t paired adequately to reality?  The company has exceeded estimates in the last 3 quarters, so maybe traders are thinking the company can only outperform for so many quarters.  Maybe the street is bracing for the company to use its stock for another big acquisition.

Options have more than 1 month of time value, so trying to use these for an estimated expectation is going to seem wider than in most cases.  It appears as though option traders are braced to absorb a move of $0.80 to $1.10 in either direction.  That 4% to 5.5% expected move is because of the time value and a low VIX is not really reflected in this number today.  ORCL shares are up roughly 50% from its January lows.

Oracle is expected to post earnings of $0.22 for the November quarter on revenues of $4.15 Billion. It is also expected to post $0.22 EPS next quarter on revenues of $4.18+ Billion.  We’ll have to see if the selling was just because of the multi-year highs or if the selling was signaling another slowdown risk for the company.  Even if these shares fall off significantly after earnings today, thestock seems like a higher trading range has been established than wehave seen in the last 5-years before the earnings report in September.

Jon C. Ogg
December 18, 2006