Oracle Corp (ORCL) impressed once again, delivering its fourth consecutive positive earnings surprise on March 24.
The Sun Microsystems acquisition is proving to be a good move, as revenues in the Hardware Systems segment were up a remarkable 258% in Q3.
Oracle is financially sound too, with over $24 billion in cash, cash equivalents and marketable securities. It pays a dividend that yields 0.6%.
Third Quarter Results
On March 24, the tech giant posted third quarter 2011 EPS of 51 cents, well ahead of the Zacks Consensus Estimate of 47 cents.
Total revenues were up 35% in constant currency. The Sun acquisition is proving to be a great move as Hardware Systems revenues were up a whopping 258%. The segment now accounts for 19% of overall revenues.
The Software segment, which accounts for 68% of revenue, increased 17%.
Meanwhile, operating income surged 35% over the same quarter in 2010. Oracle’s operating margin was an impressive 44% in Q3.
Increased Guidance
Estimates have begun rolling in off the strong quarter. The Zacks Consensus Estimate for 2011 is currently $2.01 per share, representing 26% growth over 2010 EPS. The 2012 consensus estimate is at $2.23, equating to 11% earnings growth.
Expect both of these estimates to rise in the coming days, however.
Consensus estimates have been climbing in general for Oracle over the last several months, as the company has posted 4 consecutive positive earnings surprises:
It is a Zacks #2 Rank (Buy) stock.
Solid Fundamentals
Oracle has over $24 billion in cash, cash equivalents and marketable securities. It does have over $14 billion in long-term debt, but much of this is at interest rates below 5.5%.
The company has generated an average of $8.6 billion in free cash flow per quarter since 2010. It began paying a dividend in 2009 but hasn’t raised it yet. It currently yields 0.6%.
Oracle’s payout ratio is low at 11%, so it certainly has plenty of room to boost it.
The valuation picture looks attractive with shares trading at 16.0x forward earnings, a significant discount to the industry average of 24.1x. It sports a PEG ratio of 1.1.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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