Oracle Cheaper Than Ever Following Earnings Disappointment

Oracle’s (ORCL) latest quarter’s EPS were [Non-GAAP] at $0.30 v. $0.25 or up 20% (see conference call transcript). They guided to $0.43 to $0.44 for 4Q which is 1 – 2 cents above Value Line’s estimate. Thus, their FY ending in May is likely to come in around $1.25 – 1.26 on shares that, pre-market, are offered at $19.44.

Is a great grower and market leader like Oracle only worth 15.6x this year’s earnings? On FY 2009 estimates of $1.45 it now trades at just a 13.4 multiple.

When has Oracle been a great buy previously?

In late 1998 during the ‘Asian Contagion’ period and after the collapse of LTCM ORCL shares bottomed at $3.00/share [split-adjusted]. Trailing EPS were $0.16 making its P/E at the exact low point 18.8x. The shares then surged from $3.00 to $46.50 at the height of the tech bubble in 2000.

At the market’s nadir in 2002 Oracle shares touched a low of $7.30 on trailing earnings of $0.39 or an 18.7 P/E. Astute buyers back then saw their shares run from $7.30 to $23.30 [ +219% ] to the next peak hit just last Fall.

*est. FY ends May 31, 2008

With a current calendar year forward P/E of around 15, Oracle shares are cheaper than they’ve ever been before. A great example of GARP at its best.

Disclosure: Author owns shares and is short puts on ORCL.

Comments

[cheesecake]

oracle is a crap company and i am coming from a technology perspective being a software engineer. why anybody would own it over $20 is a mystery to me.

[Paul Price]

Oracle's 'disappointing' earnings report from last week when revenues were up only 21% and EPS were up only 23% was greeted with an 8% sell-off [from a recent high set just prior to the earnings report].

Barrons noted that the numbers were more a function of the U.S. economy than anything specific to the company. Oracle shares closed at $19.37 - off 4% on the week. The "Plugged In" columnist suggested that investors pay more attention to ORCL's earnings expansion going forward.

"While not immune to weakening macro conditions, Oracle showed it can expand operating margins, grow earnings, and post record free-cash flows despite a tougher IT spending environment," noted Morgan Stanley software analyst Keith Weiss.

Weiss rate Oracle shares 'Overweight'.

[binkster666]

Agreed that Oracle missed on sales - but come on...it doesn't deserve a low p/e of 20.05 (as of Monday 3/31/08). And with such a great roe of over 27? No way. Such a steal at this price.

Oh, and its moat is that its horrendously difficult for businesses to migrate from one database application to another. This means Oracle has built in revenue streams for the future.

Combine this issue with the fact that Oracle's databases' are going to become more and more complex in the future - and the fact that these databases will be used even more - and it means that ORCL is a strong buy at this time.

Regards,

Staff at Today’s Value Investor
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