Oracle Earnings and the Shade of the Sun (ORCL, JAVA)

Oracle Corp. (NASDAQ: ORCL) is on deck for earnings after the close of trading today.  The consensus estimates from Thomson Reuters are $0.30 EPS and $5.25 billion in revenues.  The $0.30 EPS figure is the same as a year earlier,  but the revenue figure has crawled up a tiny bit.  The company may hold off giving formal guidance because of the Sun delay, but next quarter’s estimates are still $0.36 EPS and $5.72 billion in revenues. The delay of the Sun Microsystems Inc. (NASDAQ: JAVA) merger seems more critical for Sun than Oracle, but the delay here could end up being an ongoing thorn in the side of Larry Ellison either way because it is just a distraction away from core operations and it delays the integration.

What is interesting is just how much this merger completion will change the revenue mix and the size of the company in the next fiscal year.  The fiscal May 2010 revenue is expected to be $23.94 billion for Oracle, but the fiscal June 2010 revenue estimate for Sun is $10.5 billion.  This merger, assuming the E.U. wakes up and realizes that Sun’s ONLY real hope for survival is to be part of a larger and better-run group, is going to probably take Oracle out of the shopping game for some time.

Oracle’s market cap is now about $111 billion and at $22.25 per share it is just under its year high that was put  in last week at $22.95.    The analysts from Wall Street brokerage firms are still positive with a target price of close to $25.00 on average.  Options expire this Friday for September, but based upon the pricing of the nearest PUT/CALL contracts, we see an expected “pricing in up to” figure of $0.70 to $0.80 based on today’s earnings.

As shares were just at 52-week highs last week, we thought going in that the charts would offer little help.  But the pullback this week has helped and there may be a trading band for an inference to use here.  Intra-day this peaked at $22.95 last week but we are now seeing an interesting development.  Oracle has put in intra-day highs above the closing bell price in both of the last two days but failed to do so today as the $22.61 high today was under yesterday’s $22.66 close.  Before this, we had been seeing a series of higher-highs and higher-lows.  This could be a set-up for a test of the 50-day moving average down only 2% or so at $21.82, and be advised that that same 50-day rolling moving average acted as support on four different occasions in the last 90 days.  For chartists and technicians, today’s after-hours and tomorrow’s pre-market trading could begin a new look at the company.

Our real assumption today is that the Sun merger’s delay by the E.U. is taking precedent over what Larry Ellison and friends say about the CRM market.  The CRM and IT-salespeople we have spoken with have noted how things are not as tough as they were but that every bit of new business is being fought for, being renegotiated at the last minute, and being held back when possible.

Oracle has bounced significantly off its lows.  But despite hitting brief 52-week highs last week, this one has sort of been stuck since late-July compared to the broader technology sector.  Stay tuned.

Jon C. Ogg
September 16, 2009