Ellison Sells, But Should Oracle Investors Buy?
Oracle Corp. will release its second quarter earnings on Wednesday and there's a healthy amount of optimism swirling around these shares. But the stock really hasn't reacted much leading some analysts to wonder whether the company is poised for some kind of break-out, even though CEO Larry Ellison's massive selling streak, started in September, continues.
Analysts this time around are looking for Oracle to report 27 cents a share on $5.04 billion in revenue. That's the easy part. But the nuances around this company and where it goes from here are a little more complex, especially against the backdrop of Ellison's stock dump.
Oracle may finally be in the database software sweet spot, after a massive buying spree that has juiced the company's market cap by $40 billion since 2004. But surprisingly, on the quarter, Oracle launched, then walked away from a $6.7 billion hostile take-out of BEA Systems . Which may have been a wise move since rival SAP stepped forward and took out Business Objects for $6.8 billion; and SAP's shares are down 10 percent since that deal was announced.
So where does Oracle go from here? Pacific Crest Securities' Brendan Barnicle is looking for a top line, upside surprise, and for the company to beat the bottom-line by at least a penny a share. He says his channel checks on the quarter were unusually strong. He points to big deals with Dell,Wells Fargo, and Lincoln Financial and says these were the best metrics he's seen from the company all year.
In fact, the news seems so good at Oracle that Barnicle has slapped a $27 target on these shares even though they haven't moved much on the quarter. Up 22 percent so far this year, but only 1 percent on the quarter, and that could be a signal that these shares are undervalued.
Still, there are some threats looming: worries of a recession, whether enterprise customers will pull back on software spending with Oracle counting 10-15 percent of its revenue from financial services customers, and there's big exposure to retail and consumer companies. But is the worry overblown? Many analysts seem to think so with Morgan Stanley's Peter Kuper listing Oracle as his top pick for 2008.
One of the big concerns for some of those watching the company--and something I have detailed in the blog--is Larry Ellison's stock selling spree since late September. He's sold off more than $1 billion worth of shares; and over the past few weeks, he's begun exercising options to the tune of nearly $220 million in more profits.
And it's not as if those options were expiring immediately. Some are still a year away from expiration. There's nothing illegal in any of this; Ellison has filed all the necessary 10b5-1 paperwork with the SEC. And even though he's still left with over 1 billion shares, these are still extraordinary numbers, even for a guy like Ellison.
"I think it's troubling," Barnicle tells me. "Larry historically has proven to be a great seller. He's picked market bottoms and tops pretty well, and it seems like he's done that again in this cycle, so that's troubling."
Still, the ducks seem to be lining up for Oracle and a troubled economy may offer up some more deals with smaller, devalued software companies that Oracle might be shopping for. Wednesday's numbers, and Oracle's outlook, should determine whether this company offers up the best investor opportunity for large-cap tech in 2008; or whether Ellison has once again proven his perfect timing.
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