Oracle Retains Bargain Status Despite Cautious Projections

Tickers in this article: ORCL SAP

NEW YORK ( TheStreet) -- Oracle shares were slipping 0.5% Thursday to trade at $33.70, as the company continues to demonstrate that it's a low growth stock story that's still a good bargain.

On Wednesday, the software giant once again reported another quarter of sluggish revenue results during its fiscal first quarter call while managing to beat earnings per share estimates thanks to strength in its operating margins and lower tax rates. Revenues lagged as the hardware business as expected showed weakness offset by what looked to be a stronger quarter for its cloud endeavors, though they remain a smaller portion of its overall enterprise software business. Overall, new software licenses and cloud software subscriptions revenues rose 4% to $1.7 billion.

However, the company's estimates on new software licenses and cloud software for the second quarter were not spared from Oracle's overall conservative guidance Wednesday as the company cites tough comparisons and some uncertainty about the completion of large deals. "Even though our pipelines are big, we still have to close all those deals and I just can't assume that we will," CFO Safra Catz said during the company's earnings call. The forecasts failed to assuage investors who still want to see more evidence that the company is adequately combatting the risks faced by its core enterprise resource planning and database units amid the broader industry shift to demand for applications in the cloud as well as threats from competitors such as SAP's high-speed database, Hana.

The company predicts that new software license and cloud subscription revenue growth will fall in the range of negative 4% to positive 6% in the second quarter and that hardware product revenue will range from negative 9% to positive 1%. As a result, total revenue growth is expected to range from just 1% to 4%.

Garrett Marks and Emily Chan, analysts at Bernstein Research undescore that despite the increasing pressure the company faces from the cloud and competitors, Oracle after all is still the largest maker of corporate-database software and its "sticky" products and strong maintenance revenue creates a floor for the stock price.

Furthermore, "its maintenance stream provides downside protection with a 'safety net' in the $25 to $30 a share range and generates cash that could lay the framework for additional cash return," the analysts commented in a client note. Marks and Chan have a "market perform rating" on the stock, in comparison to the average "outperform" view on Wall Street.

Investors now turn to Oracle's annual OpenWorld conference which will kick off on Sept. 22. During the event the company is expected to reveal an in-memory option for the Oracle database and provide other product updates.

-- Written by Andrea Tse in New York