Oracle (ORCL) may be a good growth pick into early 2013 with the surprising numbers it just posted. Let's take a look at the stock's recent performance and see what other's think of the company.
Just before Christmas, Oracle gave investors a nice holiday present announcing that its numbers were better than expected for its fiscal second quarter. A quick review of the numbers:
- Revenues were up 3% to $9.1 billion, ahead of Wall Street's consensus of $9.03 billion.
- It cleared non-GAAP profits of 64 cents a share, up 19%, while the Street was at 61 cents.
- New software licenses and cloud software subscriptions revenues were up 17% to $2.4 billion.
The new software sales are important to investors. These are high margin and long term maintenance contracts that are used to get a sense of future profits for the company. To keep momentum growing, Oracle expects sales to stay strong despite the fiscal crisis.
The Hardware Division was not as lucky as the software Division though. This division was born from its purchase of Sun Microsystems in 2010, and it has struggled as revenue has continued to evaporate every quarter since the purchase. The company is hoping for a turnaround by March of 2013.
And look what analysts think:
- J.P. Morgan & Co. reiterated its Overweight rating and $40.00 price target on Oracle Corporation.
- Webush Securities reiterated its Neutral rating on Oracle but raised its price target from $36 to $37.
- Goldman Sachs Group reiterated its Buy rating on Oracle Corporation, and slightly raised its price target from $36.00 to $37.00.
- Piper Jaffray & Co. reiterated its Overweight rating and $36.50 price target.
Oracle is also hiring right now as the year end "budget flush" for most companies is underway. It is also getting more aggressive in its Hardware and Business Application divisions because of stiff competition and the desire to mimic the software prosperity.
After forming a nice flag continuation pattern for most of October and November, the stock has continued up since it broke resistance at the end of November. It recently had a huge gap up and has filled two-thirds of that gap. Will it continue to move up now? The gap up forced it to be over bought which in turn expected a pull back. The recent move up looks strong as the stock has used the middle Bollinger Band as support. The MACD looks like it is topping out, but watch the stock and let's see if the break above "33" resistance level can now become support. If it does, the stock will continue to move up.
The Options Play
Trading at 33.61, I believe the stock continues to move up. It many see a pull back or a sideways move for a bit but I believe it will continue to move up.
- Buy a March 2013 call with a strike of '34' (priced at $1.15)
- Sell a March 2013 call with a strike of '35' (priced at $0.71)
- Net Debit to Start: $0.44
- Maximum Profit: $0.56
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Trade
- Sales in the software division will continue to be good for the company.
- Momentum should keep the stock moving up.