Oracle Corp’s (ORCL) second quarter 2011 results outpaced Zacks Consensus Estimates, owing to strength in new software license sales. The company’s robust third quarter 2011 outlook led to a substantial rise in earnings estimates for the third quarter, fiscal 2011 and fiscal 2012 that are up by 6.8%, 5.3% and 5.2%, respectively.
Oracle’s acquisition of Sun Microsystems will provide an impetus for growth in fiscal 2011 and beyond with higher top and bottom-line growth along with increased accretive synergies strengthening its competitive position. However, integration issues, intense competition and slow growth in IT spending are areas of concern.
We are positive on Oracle’s longer-term growth prospects, given its growing market share, focus on improving profitability, new product pipeline, cost saving initiatives and robust free cash flow. We therefore upgrade the stock to Outperform and raise our price target to $37.00 on our incrementally positive outlook on the stock.