Can Oracle & Larry Ellison Escape The Hangman? (ORCL)

After today’s close we’ll get earnings out of Oracle Corp. (NASDAQ: ORCL).  The enterprise and CRM behemoth is expected to post $0.27 non-GAAP EPS on $5.42 Billion in revenues according to First Call.  For Next quarter, estimates are $0.35 EPS on $6.23 Billion in revenues.  If Larry Ellison is willing to go out on a limb for Fiscal May-2009, those estimates are $1.50 non-GAAP EPS and $25.96 Billion in revenues.  There are many other issues just besides the numbers.

For starters, we wont bother telling you about the market and the recent share price drops.  At $18.20today, shares are down more than 21% from the highs of August.  Oracleis an enterprise software company, but it has strong ties to thefinancial sector where most large financial firms are among its largecustomers.  We have also already been given enough of a heads up byother tech companies and enterprise spending companies to at least tryto factor in some weakness here.

We have seen a BUY rating reiteration out of Jefferies ahead ofearnings today and the average price target is still north of $24.00.Shares were on 52-week lows just this morning with lows under $18.00and its prior 52-week trading range was $18.07 to $23.62.

Interestingly enough, it looks as though options traders are only expecting a move of up to $0.60 to $0.90 in either direction.

What we want to toss out there is now traders are back merely toreacting to headlines, or at least that is how it has felt.  If all thepositive analysts come out and say they are surprised that Oracle isseeing softness in new orders or that certain key customers are slowingorders and cutting some existing seat licenses then they need to becalled out.  All that will surprise us if Larry Ellison comes out andsays he isn’t seeing any real slowdown in the sector.  In fact, wemight not even believe him if that was said.

The issue here is that there have actually been very few downwardrevisions over the last ninety days for this quarter and next quarterbesides the routine maintenance calls for this quarter.  There havebeen some estimates changed that brought down next quarter estimatesand a few for fiscal May-2009.

If Oracle is able to reaffirm its targets around forward targets, thestock’s forward P/E is roughly 12 and its forward multiple is justover 3.5-times revenues.  Larry Ellison’s strategy of acquiring all the smaller niche players and competitors that he could has so far paid off.  Unfortunately, he can’t control the current business climate and stock market.

Jon C. Ogg
September 18, 2008