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Oracle upgraded, set to rebound

As Microsoft testifies under the Senate committee's heat lamp, Oracle, its big competitor, is under the spotlight.

While Microsoft (MSFT), the world's largest software company, was testifying under the Senate committee's heat lamp today, Oracle (ORCL), its big competitor, was under the spotlight.

Today SoundView Financial analyst James Mendelson gave Oracle's performance a thumbs-up, barely a month after its chief executive, Larry Ellison, gave the company a needed shot of positive reinforcement. That boosted the stock to 26-1/16 today, up from a 52-week low of 17-3/4 in the aftermath of a poor second-fiscal-quarter earnings report that shocked Wall Street and sent Oracle's stock into a free fall.

Mendelson raised his short-term rating on shares of Oracle to "buy" from "hold," but said he remained cautious and kept a "long-term hold" rating on the stock.

The database maker's shares close up 1-15/16, or 8 percent, in today's trading, at 26-1/16, bringing the gains since Ellison's bullish comments in January to 38 percent, up from 18-15/16.

Mendelson said in his research report that the stock, while up from its low in the high teens, has room for more upside.

"Oracle's business is continuing to improve," he said. "While we think license revenue growth will still be far short of original expectations, pre the November quarter blow-up [when the company's second fiscal quarter fell far short of even Ellison's expectations in its key areas--server and applications sales], the results will show undeniable progress."

The analyst also raised his fiscal 1998 earnings estimate to 92 cents per share, up from 88 cents per share, and his 1999 estimate to $1.10 per share from, up from $1.08 per share. Mendelson set a short-term target of between $30 and $32 a share.

Ellison sent Oracle's stock upward after he announced at an analyst conference in January that the company's U.S. database business is expected to grow 25 percent during the current quarter, while its application business is expected to grow by 50 percent.

Despite the brighter prospects, however, not everyone is so bullish on Oracle's outlook.

Sanjiv Hingorani, an analyst with Furman Selz, today reiterated his "hold" rating on the shares.

"We continue to believe that demand for database and applications products may be decelerating as a result of the 'crowding out' of IT spending away from these products to IT managers and enterprises focusing on fixing Y2K problems on mainframes," said Hingorani, noting that Oracle's intrinsic earnings growth is slowing from 25-plus percent to less than 20 percent.

Hingorani expects Oracle to report overall revenue growth of 23.8 percent year-over-year, to reach $1.7 billion, when the company reports its quarterly results later this month.

Database server license revenues will grow only 1.1 percent year-over-year, to $481 million in the quarter, he said, while license revenues for application development tools are expected to decline by 26.3 percent year-over-year, to $59 million.

License revenues for applications are expected to increase by 48.1 percent year-over-year, to $160 million, reflecting the potential closure of some deals that slipped from the second fiscal quarter into the third fiscal quarter, he noted.

Oracle's database license revenues likely will grow 8 percent in fiscal 1998, while its application license revenues likely will grow 36 percent in fiscal 1998, he added.

SoundView's Mendelson said Oracle's stock has risen due to general strength in technology issues, leading investors to take a second look at both the company's beaten-down shares and management's positive endorsements on its business.