(By Balaseshan) RBC Capital Markets analyst Robert Breza upgraded his rating on shares of Oracle Corp. (NASDAQ:ORCL) to "Outperform" from "Sector Perform" and raised price target to $36 from $33, based on accelerating growth outlook.
While Breza has become incrementally more positive on the opportunity over the last several quarters, he has wanted to gain more visibility into the seasonally soft first quarter before getting more constructive with his rating.
Following Q4-2012 results the analyst has better visibility into the Q1-2013 outlook, more understanding of the potential foreign exchange impact to revenue, while Q2-2012 execution issues seem resoundingly in the past and the growth profile is becoming more apparent.
At current levels, valuations remain reasonable and Breza believes shares could be setting up well to outperform large cap software and technology peers from here. He said Q1-2013 guidance including potential foreign exchange impact should help refocus investors on the fundamentals.
The analyst said moderating comps and acquisitions should bolster new license growth opportunity. He believes engineered systems accounts for about 15%-20% of hardware, with the balance 80%-85% in legacy (flat) and commodity (down) products. As engineered systems becomes a more meaningful percentage of the hardware mix it should begin to drive both growth and profits for the segment.
Breza believes the company is in front of a number of additional catalysts that could also start kicking in more meaningfully over the next several quarters.
The analyst said these include a maturation of recent sales hirings (3,300 last fiscal year), the right tenure in the market for Fusion to begin to ramp more meaningfully, and the potential for greater visibility into the cloud business following the recent introduction of Oracle Cloud, acquisitions, and as it approaches a billion dollar bookings run-rate.
Additionally, the recently announced $10 billion share repurchase program could contribute an additional $0.05 to Breza's fiscal 2013 EPS estimate should it be fully implemented over the next year.
The brokerage maintained its 2013 EPS estimate for Oracle of $2.63, while lowering its revenue forecast to $38.72 billion from $38.803 billion. It introduced 2014 EPS estimate of $2.90 on revenue of $41.637 billion.
ORCL is trading up 4.37% at $29.40 on Friday.