Better Than Expected Hardware Checks Ahead of Quarter for Oracle Corp (NYSE:ORCL)

In a research report issued by JMP Securities, the firm maintains their Market Perform rating on Oracle Corporation (NASDAQ:ORCL). Some of the highlights of the note are included below.

While we remain cautious about Oracle’s long-term prospects given the shift to the cloud, we do see potential for upside this quarter for two reasons: a) the company faces much easier software license comps for F3Q (-2% comp) and F4Q (+1% comp) than it had for F2Q (+17% comp), and b) our checks suggest Oracle may do better than investors expect in its hardware business this quarter. We have collected 12 data points on the quarter, nine of which are positive, and we have six hardware business data points, five of which are positive. We increase our F3Q hardware product estimate from 4% to 8% growth (guidance was -2% to +8%), increase F3Q EPS from $0.70 to $0.71 (consensus $0.70), raise our FY14 non-GAAP EPS estimate from $2.92 to $2.95 (consensus $2.92), and increase our FY15 non-GAAP EPS from $3.17 to $3.21 (consensus $3.19). Oracle trades at a 2014 P/E multiple of 12x, in line with the peer group median multiple of 12x.

We raise our non-GAAP EPS from $0.70 to $0.71 (consensus $0.70). We maintain our license and cloud subscription revenue estimate of $2.5 billion, up 5% year over year (versus guidance of 1% to 11% growth). We look for cloud subscription revenue of $295 million, up 24%.

We increase our hardware products revenue estimate from $698 million, up 4% to $725 million, up 8% versus guidance of negative 2% to +8%.

As a reminder, in its Q2FY14 earnings call, Oracle (NYSE:ORCL) reported a hardware product decline of 3%, but said it had double-digit growth in bookings for its engineered systems’ division, with triple-digit growth in revenues from the SPARC SuperCluster line of servers.

Oracle Corporation (NYSE:ORCL) is trading up 1.60% on Monday at the top range of its 52-week high. The company has a p/e ratio of 16.26 and a market cap of 171.80 billion. Of the 4.50 billion outstanding shares, 61% are owned by institutions.



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