Oracle shares recover after post-earnings selling

The company's shares dropped early in the day before recovering to end the regular trading day at $86.19, up 14 cents.

In its fourth-quarter earnings announcement yesterday, Oracle said sales of its flagship database software rose a lower-than-expected 12 percent after the company dropped price discounts it traditionally offered to lift sales during its fiscal year-end. Database software sales account for more than 40 percent of Oracle's overall revenue.

Oracle chief executive Larry Ellison yesterday said he predicts higher demand for databases and an increase in sales next quarter.

Despite the strong earnings results, analysts at Merrill Lynch downgraded Oracle's rating to "accumulate" from "buy" because of the company's "unprecedented" stock run during the past 12 months. In research notes, Merrill Lynch analysts said Oracle stock could "appreciate at a more tempered rate over the intermediate term due to sluggish database sales growth in its latest quarter."

Merrill analysts, who set a new 12-month price target of $95 a share, said they are also lowering their fiscal-year 2001 revenues estimates to $11.9 billion from $11.96 billion but are increasing earnings-per-share (EPS) estimates to 93 cents from 80 cents a share.

While Merrill signaled caution on Oracle shares, three other Wall Street analysts reaffirmed their ratings on the company. PaineWebber analyst Kevin M. Buttigieg reiterated an "attractive" rating on the company, with a 12-month target price of $105. Douglas J. Crook at Prudential Securities reiterated a "strong buy" rating and upped his price target to $105 from $100 per share. And analyst James M. Pickrel at Chase H&Q today reiterated a "buy" rating on Oracle.

Oracle said database sales growth came in lower because the company made fewer large sales--contracts worth $5 million or more--than it did in the same period a year ago. In its year-ago fourth quarter, Oracle reported a 25 percent hike in database license sales.

Pickrel said that while database sales growth was definitely below his expectations, Oracle's profit margin expansion continues to be outstanding. "It's still a very strong picture in terms of numbers," he said. Pickrel expected a 20 percent increase in database sales for the quarter.

He also attributed Oracle's negative stock run today to a bit of profit-taking by investors.

"There's a bit of selling pressure," he said. "The stock has had a great run this year even in the midst of the (recent) tech correction. Oracle held up extremely well. It's almost expected that there would be a little bit of profit-taking."

After the closing bell yesterday, Oracle posted an adjusted net income of $926 million, or 31 cents a share, for the fourth quarter, compared with $527 million, or 18 cents a share, during the same period a year ago. A consensus of analysts polled by First Call/Thomson Financial expected the business software maker to earn 25 cents per share.

Oracle executive applications software sales soared 61 percent to $447 million. Sales from consulting, education and customer support increased 7 percent to $1.5 billion.