Oracle expected to post gains despite economy

Oracle Corp. is expected to report significant profit and sales gains when it posts third-quarter earnings next Wednesday, despite the difficult economic environment encountered recently by many of its corporate customers.

Analysts on average expect Oracle to post earnings excluding special items of 30 cents a share for the period ended in February, and $5.4 billion in revenue, according to FactSet Research.
That compares with earnings excluding special items of 25 cents a share and $4.41 billion in revenue in the same period a year earlier.

Software maker Oracle, which has numerous customers among the U.S. companies thought to be affected by the economic slowdown, has so far managed to turn in recent quarterly results that have met or exceeded Wall Street's expectations.

JMP Securities analyst Patrick Walravens wrote in a note to clients last week that he expects Oracle to again deliver a "solid" quarter Wednesday that includes earnings excluding special items of between 29 cents and 31 cents a share.
"Oracle appears to be benefiting from the consolidation of the software industry," Walravens wrote.

Oracle's ongoing acquisition spree has had it rolling up a variety of significant business software companies, most recently BEA Systems Inc., a maker of so-called "middleware" for which Oracle agreed to pay $8.5 billion in January. Middleware is software used by sprawling businesses to connect disparate networks and programs. The BEA deal "truly does open up a whole new set of enterprise license agreement opportunities," Walravens wrote.

Bear Stearns analyst John DiFucci wrote in a note to clients last week that Oracle is likely to meet expectations for its third quarter, and "likely benefited from a strong seasonal December month."

However, DiFucci noted that Oracle is unlikely to "show the magnitude of upside it has in recent quarters," and "may be experiencing effects of a deteriorating macro environment," though he doesn't expect any surprises in the company's outlook.

Pacific Crest Securities analyst Brendan Barnicle wrote in a note to clients Tuesday that checks on Oracle's business have been "a little weaker than earlier in the year." While results from Oracle's middleware business have been mixed, its applications business has been stronger than expected, Barnicle wrote.

More importantly, Barnicle wrote that its BEA acquisition will pay off well for Oracle soon.
"Oracle is likely to get a much bigger benefit from BEA than we had expected," Barnicle wrote, adding that if Oracle closes the acquisition earlier than anticipated it will likely see up to $200 million in additional revenue in its fiscal fourth quarter, rather than waiting until its fiscal first quarter.

"As a result, Oracle could grow [fourth-quarter] revenue by 17%, rather than by 14%, which is the current expectation," Barnicle wrote.

Author: John Letzing @ www.marketwatch.com

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