English: Oracle sign at Oracle Corporation headquarters in Redwood Shores, Redwood City, California.... [+]
It seems that when it comes to Oracle, investors have no idea what to do – or which side to play. While the stock always seems too undervalued to sell, there’s often very little excitement around the shares that screams “buy me or else.”
Like many other stocks on the market today such as Apple and Cisco, Oracle has been “too good for its own good.” It sounds odd – I know. What I mean is this: although the company has been a solid outperformer in the tech sector for many years, Oracle’s solid performances have become the expectation. In other words, “routine” – remarkably, even during periods of weak IT spending.
Oracle has to be great, just to be considered good. Fairly or unfairly, that’s the situation in which the database giant finds itself – except, Oracle doesn’t like it. Worst, the company hates hearing talks about its “mature status,” which suggests that it can no longer grow. However, the numbers tell different story.
On Tuesday, Oracle will have another opportunity to prove all of these skeptics wrong when the company reports its fiscal second-quarter 2013 earnings. But will Oracle take advantage of the opportunity or will it be another “routine” quarter – at least relative to estimates?
The Street is expecting 58 cents in earnings per share. If Oracle is able to meet this number, it will represent a year-over-year increase of 9.4%. On the other hand, over the past three months, estimates have dropped by a penny from 59 cents – even though full fiscal year projections have remained unchanged.
Analysts are expecting revenue to grow almost 3% in the quarter to $9.03 billion. Oracle should easily exceed these numbers if last quarter was an indication. Demand to its products and services were strong – particularly in the areas of the cloud, which produced $222 million in revenue.
Likewise, software licenses and cloud subscription revenue grew 11% to $1.6 billion – helping the company to announce record levels of free cash flow, which arrived at $13.4 billion over the past four quarters. Similarly, during that span, operating cash flow increased to $14 billion.
It’s hard to imagine if there is a better sign of how well model is working. Nonetheless, whenever discussions are being held about the cloud, the company seems to remain in the shadows of Salesforce.com and to a lesser extent SAP, both of which have opened their wallets to scoop up names such as Buddy Media and Ariba respectively.
Oracle issued swift responses by having gone on a recent shopping spree of its own. The company’s list of acquisitions include Taleo, RightNow, Endeca, Vitrue and most recently Collective Intellect, a social media monitoring firm rumored to have been acquired due to the growing popularity of social media sites such as Twitter and Facebook.
It remains to be seen how this chess game will play out. But one thing is certain – although the Street seems broadly unimpressed, Oracle understands the strategic importance of these purchases. Not the least of which is that each of these acquisitions span various industries with calculated levels of expertise including data analytics, clinical trial, human resources and even social media.
What’s more, with Oracle’s history of strong growth following smart acquisitions, it is hard not to like the stock at these levels. There are numerous factors that are holding down the shares, but very little of it has to do with the company’s fundamentals. The stock is cheap on a long term growth basis.
With shares now trading at $32, Oracle’s growth projections suggest a fair market value of $35 - this is even on the most conservative assumptions. Though the company might only be considered “good,” the stock on the other hand is “great” – a great buy that is.
