Friday, June 29, 2012

Oracle: RBC Ups to Buy, Piper Credit Suisse See Progress

Shares Oracle (ORCL) are up $1.32, or almost 5%, at $29.49, one of the best tech performers today, after the stock received a few upbeat notes from analysts trumpeting signs of progress in various aspects of its business.

RBC Capital‘s Robert Breza raised his rating on the shares to Outperform from Sector Perform, with a $36 price target, up from $33, while slightly trimming his revenue estimate for the year, writing that he’s now got greater “visibility” into foreign exchange issues for Oracle. He also thinks the company has put behind it issues of execution that had dogged its performance last fiscal year.

Breza raised his fiscal 2013 estimate for the 12 months ending in May to $38.72 billion from $38.8 billion, with $2.63 per share in profit. That is slightly below the consensus $38.94 billion and $2.66 the Street is modeling.

Writes Breza,

Seasonality should be a favorable trend through FY end now that Q1 guidance is out of the way as Oracle’s business builds through the year more so than most. FX was more impactful to the business in Q4 than anticipated (a 400 bps headwind for new licenses vs expectations for a 300 bps headwind) and is expected to be a 500 bps headwind in Q1. Management has traditionally been very transparent on FX and its potential impact should be better reflected in consensus numbers at this point. These two dynamics had been a sticking point for us and likely others as well. The additional color should help refocus investors on the fundamentals, which have remained strong

Meantime, Credit Suisse’s Philip Winslow reiterates an Outperform rating, and a $40 price target, writing that the company’s software applications should see a lift as customers head toward the end-of-life of the current “E-Business Suite” product:

Upgrades of enterprise applications, particularly ERP suites, tend to be driven more by end-of-support periods for these systems than any other prevailing factor [...] A majority of Oracle�s EBusiness Suite customers (61%) are currently deployed on release 11.5.10, which will reach the end of Extended Support in November 2013.1 We believe that E-Business Suite customers are actively planning to upgrade to the R12 version and expect Oracle�s license revenue to be lifted by an upgrade cycle in the quarters preceding the end of Extended Support, which reinforces our confidence in a continued rebound in Oracle�s applications license revenue.

And Piper Jaffray’s Mark Murphy reiterates an Overweight rating on the stock and a 33 price target, after talking with multiple sources at hardware partners to Oracle.� Those sources suggest there may be improvements in store for Oracle’s hardware product business, which has been a consistent point of concern for investors since Oracle acquiredSun Microsystems:

There is still some skepticism, but there are some believers emerging. The T4 server line is unrecognized by investors, but seeing very strong demand. Signals in the distributor channel look more positive for FY13. We asked partners if engineered systems would be successful and compensate for hardware revenue declines and one responded �It�s not a question of if, it�s a question of when.� We are not predicting smooth sailing ahead for Oracle in hardware, but want to highlight proprietary feedback showing Oracle’s underlying progress in the hardware business.

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