by Richard Moroney, editor Dow Theory Forecasts
With spring storms washing away some of the market's ?rst-quarter gains, investors should consider Oracle
), a company equipped to handle choppy waters.
of Oracle's six Quadrix® category scores rank in the top 25% of our
research universe, re?ecting steady operating momentum, a strong balance
sheet, and compelling valuation. As such, we continue to rate the stock
a Long-Term Buy.
Software licenses provide reliable revenue streams. And Oracle's
services and hardware segments help clients trim costs and keep their
pro?t margins high.
Tech bellwether Cisco Systems recently said
many enterprise customers have postponed spending as they wait for
clarity on Europe's economic weakness.
Although Cisco's clients
expect to increase spending in the second half of 2012, those plans
could change if the global environment worsens.
echo the con-servative stance taken by industry researcher Gartner,
which last month lowered its 2012 outlook for global tech spending to
2.5% growth from 3.7%. A global slowdown could affect demand for
However, demand held up during the last recession as companies,
motivated to prop up pro? ts in the absence of economic growth, sought
out technology solutions to slash costs.
Indeed, Oracle is one
of just three S&P 500 Index tech companies to grow annual sales, net
income, and operating cash ?ow for six consecutive years.
Moreover, SAP's weak March-quarter results suggest Oracle is taking applications market share away from its rival.
the February quarter, Oracle's sales of new licenses — the lifeblood of
future revenue growth — climbed 7%. Software accounts for about two-
thirds of Oracle's sales, while consulting and cloud services generate
The hardware business (19%) will continue to face an uphill
battle, with the company projecting a sales decline of 15% to 25% in
the May quarter.
But management has consistently said it will
sacri?ce less-pro? table products to restore Oracle's pro?t margins to
levels enjoyed before the Sun Mi-crosystems deal. Margins have risen
year-over-year in each of the last ?ve quarters.
quarters of free-cash- ?ow growth have given Oracle a pool of nearly $3
per share in cash net of debt, 11% of the stock price and up from $0.35
per share two years ago.
Oracle's price/earnings ratio hovers
near its lowest level in more than a decade. At 11 times trailing
earnings, the stock trades 40% below its three-year average and 18%
below the median for systems-software stocks in the S&P 1500 Index.
a maturing tech titan, Oracle's growth has decelerated in recent years,
and some worry that clients will gradually shift toward cloud-based
applications offered by competitors who don't require long-term service
Still, consensus estimates project per-share pro? ts
will rise 9% in ?scal 2013 ending May and 12% annually over the next