Oracle Just Keeps Rolling Along

Posted Mar 22nd 2010 10:00AM by Joseph Lazzaro
Filed under: Oracle Corp (ORCL), Stocks to Buy

Enterprise software leader Oracle Corp. (ORCL), which I first wrote about here on April 7, 2009, at a price of $18.54, just keeps rolling along.

There's no mystery regarding Oracle's bread-and-butter. Oracle remains a leading provider of enterprise software, organized in two businesses: software and services. And in 2009, Oracle again prudently used an acquisition to expand its range of tools, buying Sun Microsystems for $3 billion.

Look for 2010 revenue to rise 12% to 16%, and better than 25% in 2011, bolstered by an expanded product line, including 7% to 9% organic software license growth.

Meanwhile, operating margins should remain roughly flat at 45%. The First Call FY2010/FY2011 EPS estimates for ORCL are $1.59 to $1.89. Each EPS estimate looks about 10% to 15% low, according to my analysis.

Technically, Oracle's stock is strong -- an uptrend, but it's permeated with above-average volatility. Hence, don't buy ORCL if you can't tolerate a 10% to 15% price drop in a month -- it could happen.

2010 Outlook: I view Oracle as a long-term play, but if investors are looking to sell ORCL within the year, it's probably best to take your profits after it rises to $28-$29, if it fails to rise above $30.

Stock Analysis: I consider Oracle to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in Orcale now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my ORCL position before April 2010 and I'd put a sell/stop loss at $13.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: featured, Oracle, software