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, incremental 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.

Zacks Investment Research

(ORCL) Oracle Analyst Bullish on Long-Term

During the third quarter earnings release, management had raised its outlook for fiscal 2009 due to continued focus on operational execution, which is driving growth. Accordingly, earnings per share were expected to be in the $1.34 – $1.38 range, up from its previous outlook of $1.22 –$1.28. As a result, 1 out of the 9 analysts covering the stock raised estimates for the full year 2009 in the last 30 days.

With respect to earnings surprises, Teradata recorded an average earnings surprise of 42.12% in the last reported four quarters (meaning that it beat the Zacks Consensus Estimate by 42.12% during this period).

However, the current Zacks Consensus Estimate calls for $1.37 cents per share in earnings for full-year 2009 with a 0.73% potential negative downside. This is a 6.16% decline from the $1.46 per share in earnings reported in fiscal 2008. In our view this is due to the company’s weak revenue guidance.

Revenues for the full year are expected to be down 1% to 3% on constant currency basis. Although the company expects SG&A expenses to be down, selling expense, research and development expenses, as well as amortization of capitalized software costs are expected to be higher in the fourth quarter of 2009.

We remain optimistic on Teradata, as it is well positioned to benefit from the growing database analytics market. However we would ask investors to remain on the sidelines until the stock delivers improved traction from its sales force expansion strategy.

The company’s third quarter results beat the Zacks Consensus estimate. Teradata expects long-term revenue growth of 7% to 9%. We expect improved traction from Teradata’s sales force expansion strategy, which should drive top-line growth in 2010 and beyond.

Teradata added over 40 new sales territories in 2008 and remains on track to add a total of 60 new sales territories by the end of fiscal 2009, thereby totaling 445 territories in 2009. The company expects to add another 30 teams in 2010. Revenue could accelerate, given the expansion of its sales territories and the building of its distribution channels and we opine Teradata to be a 2010 growth story.

Moreover, Teradata’s balance sheet remains strong with no debt. The company is sitting on a cash (cash plus short-term investments) balance of $704 million and generates impressive cash flow from operations. Year-to date, cash flow from operations was $364 million and free cash flow $303 million.

The data warehousing market is mature and has been dominated by large payers such as Oracle Corp. (ORCL), Netezza Corp. (NZ), International Business Machines Corp. (IBM), Microsoft Corp. (MSFT), Sybase Inc. (SY) and SAP AG (SAP).

Teradata is up against increasing competition from much larger players in the data warehousing industry, which is leading to market share erosion. With a greater number of competitive products in the market, we expect pricing pressure to continue, thereby limiting margin expansion.

While we expect the data warehousing market to benefit from increased enterprise spending in the next year or two, increased consolidation among larger players in the data warehousing industry is eating into Teradata’s market share (currently ranks fourth in terms of data warehousing market share according to IDC research).

We have a Neutral recommendation on Teradata, indicating that it would perform in line with the market. Our price target of $30.00, 20.4X 2010 EPS, represents a slight discount to the industry but a premium to the S&P 500.

Zacks Investment Research

(TDC) Teradata Corporation Gives an Earnings Preview

Excluding $5 million, or 2 cents of impairment charge, the company reported earnings of 38 cents per share in the third quarter of 2009, compared to a net income of 36 cents per share in the year-ago quarter.

However, total revenue fell 3.2% to $425 million from the year-ago quarter, primarily due weakness in product revenue, which fell 10.3% year over year to $191 million. This was offset by an increase in Services revenue, which rose 3.5% to $234 million in the quarter, driven by strength in the professional services business. Revenue includes a 1% negative impact from changes in foreign exchange rates.

On a regional basis, the company witnessed strong growth from the Europe, Middle East and Africa (EMEA) region, which grew 3% in the quarter, or 9% when adjusted for currency. This was offset by a 2% year-over-year decline in revenue from the Americas. The Asia Pacific region was deeply hurt, falling 14% — 17% when adjusted for currency.

Operating Performance

Operating income increased 2.3% year over year to $88 million due to improvement in the Services’ gross margin and lower SG&A expense, which more than offset the incremental investment in sales and the negative impact of currency translation.

Gross margin decreased to 53.4% in the quarter from 54.0% in the third quarter of 2008 due to lower product gross margin which fell to 62.3% from 64.3% in the year-ago period. However, Services gross margin improved to 46.2% from 44.2% in the year-ago quarter due to higher professional services margin. Amortization of software development costs was higher compared to the prior-year quarter, in line with expectations.

Balance Sheet

Teradata’s balance sheet remains strong with no debt. The company exited the quarter with $704 million in cash, a $66 million increase from the previous quarter. During the quarter, the company generated $96 million of cash from operating activities. Capital expenditures in the quarter were $21 million. As a result, the company generated $75 million of free cash flow in the quarter. In addition, the company used approximately $21 million of cash to repurchase approximately 830,000 shares.

Outlook Raised

Management raised its outlook for fiscal 2009 due to continued focus on operational execution, which is driving growth. On a non-GAAP basis, excluding 2 cents of impairment charge, earnings per share are expected to be in the $1.34 – $1.38 range, up from its previous outlook of $1.22 – $1.28. Revenues for the full year are expected to be down 1% to 3% on constant currency basis. Although the company expects SG&A expenses to be down from 2008, selling expense, research and development expenses as well as amortization of capitalized software costs are expected to be higher in the fourth quarter of 2009.

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(TDC) Teradata Corporation Tops Forecasts, Outlook Raised

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