September 17, 1997 1:10 PM PDT

Oracle downgraded after report

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Oracle (ORCL) stock dropped more than 7 percent this morning, a day after the No. 2 software maker released its quarterly earnings report.

At least two analysts cut their ratings, and a handful lowered future estimates for the company.

Excluding one-time charges associated with acquisitions, Oracle's profits, at 15 cents a share, were in line with analysts? predictions. But weak currencies overseas, lower-than-expected revenues, and a dramatic slump in sales of database products caused some analysts to worry.

Oracle also reported revenue of only $1.37 billion, down more than 2 percent from analysts' predictions of $1.4 billion. Weak currency markets overseas, where the strong dollar is pulling Oracle revenues down by as much as 7 percent, also are cause for concern.

"We believe that it is unlikely that Oracle can beat Wall Street's expectations for the company over the next several quarters," Salomon Brothers analyst Neil Herman wrote in a report released today. "Consequently, we are downgrading the stock to 'hold' from 'buy.'"

Analysts at Cowen & Company also downgraded Oracle, from "strong buy" to "buy." And Salomon Brothers lowered its earnings estimates for Oracle, adjusting 1998 earnings to $1.10 a share from $1.13 and $1.40 a share in 1999, down from $1.43. Several other analyst houses echoed the decrease in estimates.

Despite the lower estimates, some analysts remained bullish about Oracle, saying the worries investors are feeling are likely to be temporary.

"It seems more like a short-term worry by these analysts, because [Oracle] still seems to be gaining market share and the fundamental business still seems strong," said Brian Goodstadt, an analyst with Standard & Poor?s. "This quarter is typically their toughest."

Standard & Poor's continues to give Oracle a five-star rating, the firm's highest.

That, however, doesn't mean Oracle is without problems. Despite the recent release of its flagship product, a database package called Oracle8, sales of database products during the quarter increased by only 6 percent compared with the same quarter last year.

"We are concerned that negative currency translation and economic turmoil in the Far East are not going to disappear, and are likely to hurt Oracle in future quarters," Salomon Brothers' Herman wrote.

Despite such concerns, Jim Pickrel, an analyst at Hambrecht & Quist, said profit-taking, rather than deep-seated worries about Oracle?s future, likely drove down the company?s stock.

"There really was no startling change in the trendlines for the company," he said, "but people are maybe taking profits and seeing what the next set of results might be."

 

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