ORCL – Oracle Stock Is Cheap, But for Good Reason

Oracle (ORCL) reports earnings after the bell today. And while shares of ORCL have been bumped slightly higher in today’s trading, it’s far from certain that the climb will continue following Oracle earnings.

Year-to-date, ORCL stock has been subpar, tallying a mere 2% gain. And that’s despite some momentum in recent months; Oracle stock actually has been barely beating the broader market from its July low until mid-December.

For the coming second-quarter report, analysts expect Oracle earnings of 67 cents per share on revenue on $9.19 billion. That ORCL sales number represents a small nudge higher, while the earnings estimate translates to a so-so 5% improvement.

Together, both translate to more reasons to stay away from Oracle stock.

ORCL Stock Is Struggling

One thing that simply has to be noted when talking about Oracle stock: It’s downright cheap. Shares of ORCL are currently trading for a forward P/E of 11, which is right in line with the 11% earnings growth expected long-term. And if you back out the billions of cash Oracle has on its balance sheet, that ratio drops down to 8.

Not too shabby, especially when the broader market has posted a killer 2013, making lots of big names expensive.

But Oracle stock has been battered down to bargain levels for good reason. Oracle has missed sales expectations for the last three quarters. In fact, Oracle CEO Larry Ellison lost more than $3 billion of his personal wealth in one day after a sales drop was reported in March.

What’s even more concerning is the fact that Cisco (CSCO) — another tech bellwether — recently cut its growth targets, citing trouble in emerging markets. That same headwind could easily weigh on ORCL stock … and in a way, it already has been. Since the Cisco news broke, Oracle stock has fallen around 3%.

Besides, even though Wall Street analysts remain generally optimistic about ORCL stock, consensus estimates translate to mere 9% upside. Meanwhile, RBC Capital Markets recently downgraded Oracle stock to “sector perform” from “outperform” and lowered its price target slightly. That came on the heels of a downgrade from Morgan Stanley the month prior.

What Could Jump-Start Oracle Stock

According to Business Insider, though, there could be more than just shrug-worthly quarterly numbers coming out of today’s Oracle earnings report. Wall Street analyst Pat Walravens — the director of technology research for JMP Securities — told Julie Bort about some things that could be in the works at ORCL.

The first: A potential reorganization of the company’s U.S. salesforce (although this may not be announced publicly). Of course, this would be a reorg of a reorg. Remember, Oracle President Mark Hurd began overhauling the salesforce a couple years back, and with mixed results. See (also according to Business Insider), lots of Oracle employees began quitting because the environment was too cut-throat.

The other big announcement, which would absolutely be shouted publicly, is a potential big agreement with Hewlett-Packard (HPQ). This is especially notable considering ORCL recently struck an agreement with another rival: Salesforce.com (CRM).

Until more details — and the right details — are announced, though, there’s little reason to believe ORCL stock will just suddenly get into gear.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.