Monday, June 20, 2011

Oracle Corp. (NASDAQ: ORCL): Q4 Earnings Preview 2011

Oracle Corp. (NASDAQ: ORCL), the world's largest enterprise software company, is scheduled to release fiscal fourth quarter earnings after the closing bell on Thursday, June 23, 2011. Analysts, on average, expect the company to report earnings of 71 cents per share on revenue of $10.75 billion. In the year ago quarter, the company reported earnings of 60 cents per share on revenue of $9.63 billion.

Oracle Corporation engages in the development, manufacture, distribution, servicing, and marketing of database, middleware, and application software worldwide. Oracle is organized into two businesses: software and services.

In the preceding fiscal third quarter, the Redwood Shores, California-based company's net income was $2.1 billion, or 41 cents per share, compared to $1.2 billion, or 23 cents per share, in the year-ago quarter. Excluding stock options expense, amortization of intangible assets, restructuring charges and other items, non-GAAP net income for the third quarter was $2.8 billion or 54 cents per share, compared to $1.9 billion or 38 cents per share in the prior year quarter. Total GAAP revenues rose 37% to $8.76 billion from $6.40 billion a year ago. Analysts, on average, expected the company to report earnings of $0.49 per share on revenue of $8.66 billion. 

For the third quarter, Oracle expects non-GAAP EPS in constant currency to range between 48 cents and 50 cents. Assuming the current exchange, EPS is expected to range between 48 cents and 50 cents. This is up from 38 cents reported in the comparable quarter last year. Total revenue growth on a non-GAAP basis is expected to range from 31% to 35% at current exchange rate and 30% to 34% in constant currency. New software license revenue growth is expected to range from 10% to 20% at current exchange rate and 9% to 19% in constant currency. New software license sales are key for Oracle, because they represent new business, as opposed to the sale of maintenance or services to existing customers.

At its last earnings call in March, Oracle said that it anticipates that fourth-quarter earnings excluding items will be between 69 and 73 cents a share. Oracle expects new software license sales to increase between 9% and 19% compared to the period a year earlier, while hardware sales are expected to rise between 6% and 12%. The company said that it doesn’t anticipate a significant negative impact on its business from the recent earthquake and tsunami in Japan. Japan represents roughly 5% of Oracle’s annual revenue. 

Oracle, which has spent more than $42 billion on acquisitions over the past six years, has seen sales grow faster than those of rivals as it cross-sells its database, middleware, business management software and hardware to the same set of customers.

Oracle has also benefited immensely from acquisition of Sun Microsystems. The acquisition is expected to be accretive to its earnings by at least 15 cents per share on a non-GAAP basis in 2011. Oracle expects Sun to exceed the company’s targets for fiscal 2011 and 2012. The acquired business will contribute over $1.5 billion to Oracle’s non-GAAP operating profit in 2011, increasing to over $2 billion in 2012. Revenues from Sun Microsystems are expected to be $9.6 billion in 2011.

The company is attempting to reinvest itself as a "systems" company, one that has a complete "stack" of products, both hardware and software. Oracle has purchased a slew of companies in the past five years to reposition itself in the technology industry. 

The company's stock currently trades at a forward P/E (fye May 31, 2012) of 13.23 and PEG Ratio (5 yr expected) of 0.88. In terms of stock performance, Oracle shares are up nearly 33% over the past year.

Full Disclosure: None.
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