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Oracle paces software stocks

Despite mediocre fourth-quarter results that one analyst calls "ugly," Oracle analysts' prognosis is positive for the software giant and its competitors.

Oracle analysts have spoken. And despite mediocre fourth-quarter results that one analyst called "ugly," their prognosis is positive for the software giant and its competitors.

Shares of Oracle rallied Tuesday, a day after the company reported its fourth-quarter results. After market close, shares were up 1.92, or 13 percent, to $16.76. Siebel Systems gained $3.61 to $41.90 on a ratings upgrade. SAP was up $2.04 to $34.93, and Microsoft rose 44 cents to $67.32. The CNET Server Software index was up more than 6 percent.

Analysts weren't exactly raving about Oracle's performance. The company reported earnings of 15 cents a share, edging by estimates of 14 cents a share, according to First Call. Revenue came in short of estimates, which had been for $3.4 billion. Oracle brought in revenue of $3.27 billion, which was also a decline from last year's fourth-quarter revenue of $3.37 billion.

But given that investors were expecting the worst, Oracle's ho-hum results were enough to prompt upgrades and boost software stocks.

"Oracle reported decent results in a bad environment," said Salomon Smith Barney analyst Gretchen Teagarden, who raised her rating to "outperform" from "neutral." Christopher Shilakes at Merrill Lynch also upgraded the stock to long-term "buy" from long-term "accumulate," and Wendell H. Laidley at Credit Suisse First Boston upped the stock to "strong buy" from "buy."

"Oracle's fourth-quarter results were mixed, but likely to be viewed with some relief given apprehension over the quarter for software vendors," said Goldman Sachs analyst Rick Sherlund, who maintained a "market outperform" rating on the stock.

SG Cowen Securities analyst Drew Brosseau called Oracle's feat "winning ugly." The company's results were the worst in 10 years, the analyst observed. Yet because it managed to finish near analysts' estimates and above the Street's consensus, investors applauded. Brosseau maintained his "buy" rating on the stock and guided investors to watch out for growing competition and signs of any faltering demand for the company's new products.

"We believe the enterprise software universe will bounce in the coming days on the heels of Oracle's results," Teagarden wrote. She named BEA Systems, up 63 cents to $29.07, and Mercury Interactive, up $3.47 to $54.84, as companies whose stocks might be bargains.

Rivals such as i2 Technologies, up 26 cents to $17.12, PeopleSoft, up 97 cents to $40.62, Tibco Software, up 58 cents to $15.02, and WebMethods, up $1.59 to $20.99, also gained.

Siebel was also upgraded to "outperform" from "neutral" by Salomon analyst Heather Bellini.

"Siebel is likely to exit the downturn stronger than when they entered it," Bellini wrote in a research note, citing the company's strong business in customer-relationship management software, which remained a priority for its customers even in the downturn.

As for the macroeconomic environment, Bellini struck a chord with fellow analysts in predicting that it remains a big risk. Though most analysts predicted that Oracle and competitors would move up on the software giant's results, all agreed the enterprise software market still has a way to go.

Analysts said Oracle might cheer up the software sector, but noted that recent economic trends could continue to hurt earnings and derail a second-half recovery.

"Oracle management described a possible 'bottoming out' in the market, and we too believe that software demand is firming from its February-April trough," said Banc of America Securities analyst Bob Austrian. "That said, there's little proof of a recovery as yet."