ORCL has had a roller-coaster year. It has been up and down and up and down and up again, and we think it is poised for another swing down. Let’s start with the technicals.
ORCL has been climbing with the rest of the market since early September, but it has just hit a significant downward-sloping resistance level that connects with the highs in March, May, June and August. Each time ORCL has approached this level this year, traders have started selling and taking profits. These smaller pullbacks have preceded two huge gaps lower on ORCL’s past two earnings announcements. With ORCL’s earnings announcement coming up on Wednesday, Sept. 18, after the market closes, we expect this same pattern to repeat itself. We don’t know if we’ll see as large of a gap down at earnings, but we do expect a decline into the earnings announcement. Next, let’s take a look at the fundamentals.
ORCL has had a rough time growing its new software license and cloud subscription business as quickly as analysts have been expecting. Last quarter, ORCL was only able to grow that segment of the business by 1%, while some analysts were looking for growth as high as 11%. Since then, ORCL has announced strategic partnerships with Microsoft (MSFT), Salesforce (CRM) and NetSuite (N) to try and solidify its position in the industry, but with the June Information Week survey showing ORCL losing ground to both MSFT and CRM in enterprise app use, and in a business environment where companies are pulling back on their IT costs — after having spent the past few years upgrading and streamlining — we don’t think ORCL will be able to make up as much ground as it hopes.
At this point, we plan on holding ORCL through its earnings announcement. The company did raise its dividend last quarter and is continuing to buy back shares, which could affect the actual earnings-per-share (EPS) numbers the company reports today after the close. But so long as the overall growth rate of the business continues to slow down, we anticipate traders will continue their recent practice of buying the rumor and selling the news.
Recommendation: Buy to open the ORCL October 32 Puts (ORCL131019P00032000)
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.