Oracle, value stock?

[C Espinosa]

I have recently been following ORCL.

Most of the analyst opinions have been positive, yet it has been flat the last two months. The merger with PSFT seems to be doing okay. According to analyst from Morgan Keegan this merger will eventually be accretive by late 2006, so there is potential.

It has a P/E of 23, which is less than its competitor SAP, at 29. It also has a not-so-shabby operating margin of 39%, also a wider margin than its counterpart. It has a trailing beta of 1.4, where as SAP at 2.7. It is trading well above its 200MA, and has a short ratio of less than 1. Does the market just not see the value on this firm, or is it percieve to be too risky due to its recent merger?

[HenryTo]

Oracle actually beat estimates even though revenue came in on the lighter side. At some point, ORCL will be a buy but probably not right now.
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Reuters
Oracle Profit Drops on PeopleSoft Charges
Tuesday March 22, 5:53 pm ET

SAN FRANCISCO (Reuters) - Oracle Corp. (NasdaqNM:ORCL - News), the world's second-biggest software company, on Tuesday posted a lower quarterly net profit on charges related to its purchase of smaller rival PeopleSoft.
While Oracle's profit, excluding charges, was ahead of the average Wall Street expectation, revenue lagged analysts' estimates and Oracle's shares fell in after-hours trading.

Net income for Oracle's fiscal third quarter ended Feb. 28 fell to $540 million, or 10 cents a share, from $635 million, or 12 cents a share, a year ago, the Redwood Shores, California-based company said.

Revenue rose to $2.95 billion from $2.51 billion.

Excluding items, Oracle reported third-quarter earnings of 16 cents a share.

Analysts on average were expecting Oracle to post earnings, excluding items, of 15 cents a share on revenues of $3.05 billion, according to Reuters Estimates.

Oracle announced late Monday it had agreed to buy small retail software Retek Inc. (NasdaqNM:RETK - News) for about $670 million, outflanking SAP's bid for the Minneapolis-based company. The acquisition comes two months after Oracle completed its $10.6 billion purchase of PeopleSoft.

Citing an improved outlook for the fourth quarter, Oracle raised its full 2005 forecast for a profit before items to 64 cents per share to 65 cents from a previous forecast of 62 cents per share, said acting chief financial officer Safra Catz in a statement.

For the full year, analysts expect a profit, on average, of 63 cents per share.

"The earnings look pretty good, there were some pushes and pulls within the numbers, but the bottom line is they raised their guidance for the year -- and that should drive the stock higher tomorrow," said Steve Neimeth, portfolio manager at AIG SunAmerica Mutual Funds, who oversees funds owning 250,000 Oracle shares.

Oracle said license revenue, or sales of new software, in its mainstay database business rose 11 percent to $782 million in the quarter from $700 million a year ago.

New sales of applications software that helps to automate human resources, accounting and other functions, and where it competes with rival SAP, rose 14 percent to $152 million from $140 million.

On a conference call with analysts to discuss the results, Catz said Oracle will largely confine itself to acquisition that are smaller than its purchase of PeopleSoft.

"There is nothing the size of PeopleSoft" that Oracle is considering acquiring, Catz said.

Oracle shares, which closed down 16 cents at $12.49 on Nasdaq, slipped 1.8 percent to $12.26 in after-hours trading on the Inet electronic brokerage. The stock, which has a 52-week high of $14.87, trades at a price-to-earnings discount relative to many of its peers, including German rival SAP (XETRA:SAPG.DE - News). (With additional reporting by New York Wall Street Desk)

[HenryTo]

The following article about the competition of Oracle and SAP is from Forbes. It looks like that people are still worried about the potential of Oracle to compete in the SAP-dominated arena of enterprise applications - and whether Peoplesoft's employees will be loyal to Oracle - given that the takeover process got pretty ugly.

Moreover, a P/E of over 20 for a technology company like Oracle is not cheap from a historical standpoint. Taking the current year estimate of 62 cents and assuming 10% growth for the next ten years and 3% thereafter; and using a discount rate of 11%, one gets a fair value for ORCL of approximately $13. Of course, ORCL still has about $2 a share in cash and a brand worth about $11 billion (according to the latest Interbrand survey: http://www.ourfishbowl.com/images/surveys/BGBleaguetable_final_.pdf) but it is still not "very cheap" from a Warren Buffett standpoint.

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Software
Oracle, Be Careful What You Wish For
Lisa DiCarlo, 01.28.05, 6:00 AM ET

2/18/05 4:01:00 PM ET

NEW YORK - It was just Larry being Larry, really. Wednesday's declaration of "war" on SAP by Oracle's chief executive was nothing out of the ordinary for the larger-than-life Larry Ellison. But Oracle should be careful what it wishes for.

Oracle (nasdaq: ORCL - news - people ) must be feeling puffed up after it finally prevailed in its 18-month-long, $10 billion quest to acquire PeopleSoft. The deal undoubtedly strengthens Oracle's hand--it has doubled its applications market share--and gives it a bigger club to fight IBM (nyse: IBM - news - people ) and Microsoft (nasdaq: MSFT - news - people ) in corporate infrastructure.

But let's not forget SAP (nyse: SAP - news - people ). In 2004, corporations worldwide spent $47 billion on enterprise applications, and SAP captured 18% of that spending. A merged Oracle/PeopleSoft has a 12% share, according to AMR Research.

That doesn't sound like an insurmountable gap until you consider that SAP's biggest advantage is in core enterprise-resource-planning applications, where it has a 36% market share (up from 32% in 2003), compared with Oracle/PeopleSoft's 20%. ERP accounts for the biggest slice of all application spending but was expected to grow only 3%, compounded, from 2003 to 2005, according to AMR.

"It's not smart to deliberately provoke the No. 1 vendor in the space," says AMR analyst Bruce Richardson. "SAP is going to hire 3,000 people and do it at the expense of margins."

SAP said this week it would hire that many employees this year and expects to see new software-license sales grow by 10% to 12%, above earlier projections. SAP also bought a Pleasanton, Calif.-based company called TomorrowNow, which sells software maintenance and support services for PeopleSoft applications.

It's important that Oracle keeps its promise to support and develop PeopleSoft applications. To do so, Oracle said it is offering jobs to 90% of PeopleSoft's developers. That's great news if they accept, but who says they will? Remember the ugliness of the takeover battle, and that PeopleSoft employees tend to be uncommonly loyal to the company. Further, an upswing in IT spending could mean a more favorable job market elsewhere in Silicon Valley.

In his presentation Wednesday, Ellison said Oracle "would love to get into a technology war with SAP."

Well, it has one. The good news is that for the first time in more than a decade, SAP has some real competition. The bad news is that the competition could prove SAP's domination.

[HenryTo]

Oracle aims to overtake SAP in market share in the next few years
AFX News Limited
Wednesday, February 02, 2005 (Originally Published: 2/1/2005)


ERP News Home

NEW YORK (AFX) - Oracle Corp hopes to overtake the Germany's SAP AG in terms of market share in business applications software in the next few years, Oracle's president Charles Phillips said.

Phillips told the Wall Street Journal in an interview that a key measure of the success of his company's recent 10.3 bln usd acquisition of PeopleSoft Inc would be whether it displaces SAP from its No. 1 spot.

"We're ready to take on SAP head to head," said Phillips, adding "we want to pass them eventually" in terms of market share. Within three or four years "we should be seeing the whites of their eyes," he added.

Oracle has a long way to go, the Journal noted. While its flagship database-software business remains strong, it has struggled in the market for software applications that companies use to manage accounting, human resources, manufacturing and other processes, it said.

SAP is the leader in that segment with an 18 pct market share, the Journal said, citing figures from AMR Research Inc. Even after the PeopleSoft acquisition, Oracle's market share is 12 pct, it noted.

Phillips acknowledged that SAP has a strong foothold as the provider of financial software to the world's largest multinational companies, but noted the enlarged Oracle often supplies those companies' human-resources software and is present at plants and other company locations. "We are now surrounding them at many of their best accounts," Phillips said.

SAP declined to respond specifically. "We are not commenting on the business strategy of our competitors," Markus Berner, an SAP spokesman, told the Journal.

Copyright 2005 AFX News Limited. All Rights Reserved