Oracle's Revenues Fall Short But Valuation Not Bad

| About: Oracle Corporation (ORCL)

Enterprise computing titan Oracle (NASDAQ:ORCL) reported mixed results for its fiscal year 2013 first quarter. Revenue came in meaningfully lower than consensus expectations, down 2% year-over-year to $8.1 billion. Non-GAAP earnings per share grew 11% year-over-year to $0.53, equal to the consensus estimate. Without the negative impact of currency, earnings would have surged 17%. Our fair value estimate remains unchanged.

The main driver of weakness at the tech giant continues to be hardware, as the Sun Microsystems acquisition hasn't been quite as accretive as the firm would have liked. Hardware products revenue fell 24%, while support revenue fell 11%, as businesses remain cautious on making heavy tech infrastructure investments. New software licenses and cloud software grew 11% (ex-currency), with the operating margin increasing to 44%.

Recently, Oracle has focused on acquiring new human resources technology to integrate with its enterprise offerings. We've highlighted SelectMinds in the past and think the acquisition of Taleo will also help cement Oracle's dominant enterprise position. Even if hardware remains weak, the company continues to generate enormous amounts of cash, with operating cash flow coming in at $5.7 billion during the period. Free cash flow was an absolutely tremendous $5.1 billion, which led the firm to repurchase over $3 billion of shares (and at a nice price, in our view).

In the current quarter, the firm expects revenue growth between 0-4% (1-5% ex-currency), leading to earnings of $0.59-$0.63 on a non-GAAP basis. Revenue growth expectations came in slightly short of expectations, but earnings growth was roughly in-line with consensus. We were also anxious to hear that CEO Larry Ellison will announce changes to the company's cloud offerings next week.

Oracle's guidance could prove to be conservative if companies execute on fourth-quarter budget dumps. Shares score a 7 on the Valuentum Buying Index (our stock-selection methodology), so we think the firm looks somewhat attractive. Still, we're comfortable with the current tech exposure in the portfolio of our Best Ideas Newsletter. For an in-depth view on how we calculate our $42 per share intrinsic value estimate for Oracle, please click here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.