(ORCL) Oracle Analyst Bullish on Long-Term

February 23rd, 2010

We remain positive on Oracle Corp.’s (ORCL) long-term growth and expect 2011 results to be strongly aided by the Sun Microsystems acquisition, which provides an impetus for growth in fiscal 2011 and beyond.

We expect increased accretive synergies strengthening its competitive position. The acquisition enabled Oracle to take out its number one competitor, Sun and better position it to compete against International Business Machines Corp. (IBM), its biggest database software rival, as well as Hewlett-Packard Co. (HPQ) and Cisco Systems (CSCO). If successful, Oracle’s new strategies would lead to higher top and bottom-line growth, with increased traction from the combined product portfolio.

Oracle reported second-quarter 2010 earnings that beat the Zacks Consensus Estimate and provided encouraging guidance demonstrating that enterprise application spending is on the mend. We are highly positive on the company’s long-term earnings growth prospects due to its growing market share Incorporatedremental cost savings and robust cash flow.

Further, Oracle’s new offerings are likely to help it garner share from Microsoft Corp. (MSFT), SAP AG (SAP) and Teradata Corp. (TDC) in the database market.

Estimate Revisions Trend

As the premier database vendor, Oracle is benefiting from an improved product road map. Moreover, Oracle’s recent results and better-than-expected forward guidance represent the main reasons for estimate revisions moving up.

However, the key for the company’s longer term growth prospects in our opinion is the successful integration of Sun, which will drive numbers at Oracle. This should raise estimates further, boosting its share price.

Over the last 30 days, 12 out of total 29 analysts covering the stock raised their full-year 2011 EPS estimates and there were no negative revisions.

The current Zacks Consensus Estimate for fiscal 2011 is $1.80, an increase of 16.9% from the 2010 estimated EPS of $1.54. Upside potential to this annualized forecast is 2.22%.

In the last 30 days, 5 analysts have raised their estimates for fiscal 2010, while 2 have lowered their forecasts. We believe the mixed revision for the current fiscal year reflects significant uncertainty surrounding the stock as analysts require further evidence of a successful integration of the Sun acquisition. We also believe that it will take at least another 6 months to generate incremental benefit from the acquisition.

In terms of earnings surprises, Oracle has a favorable track record. The company reported surprises in three of the four trailing quarters, a 5.91% net average positive surprise. This means that Oracle’s earnings have beat the Zacks Consensus Estimate by that percentage in the last 12 months.

The current Zacks Consensus Estimate for earnings in the first-quarter of 2010 as 36 cents, representing a 5.9% improvement from the 2009 EPS of 34 cents. The upside potential is non-existent at this point and earnings are expected to be in line with the Zacks Consensus Estimate. Thus we do not expect much upside in the near term.

Our Neutral recommendation on Oracle indicates that we expect it to continue trading at a discount to its peer group.

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(ORCL) Oracle Analyst Bullish on Long-Term

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