by Joseph Hargett | March 14, 2014 10:42 am
Oracle (ORCL) enters the earnings limelight next week, with Wall Street expecting more steady performance from the enterprise software and hardware solutions firm, and traders looking to act quickly could get some run out of options on ORCL stock.
Currently, the consensus is expecting Oracle earnings to rise 8% to 70 cents per share, with revenue seen adding 4% year-over-year to arrive at $9.36 billion.
Outside the top- and bottom-line figures, investors will be paying close attention to Oracle’s efforts to gain more traction in the cloud. ORCL has been aggressively perusing a more substantial position in the cloud computing market, hoping the move will drive better results going forward thanks to higher subscription revenues and improved sales force productivity. Any news on the cloud front could be the tipping point for a warm or cold reception of the Oracle earnings report.
Overall, the brokerage community believes that ORCL stock is fairly valued at the moment. According to Thomson/First Call, the shares have analysts evenly split, with 19 “buy” ratings and 19 “hold” or worse ratings. Additionally, the consensus 12-month price target for ORCL stock rests at $40, representing a premium of only about 6% to yesterday’s close.
Options activity is equally as passive when it comes to an outlook for ORCL stock. Specifically, call open interest for the March/April series arrives at 170,271 contracts, compared to put open interest 136,059 contracts. The result is a middling put/call ratio of 0.8 for the front two months of options activity.
Drilling down on this activity shows heavy call open interest resides at the overhead March 40 (22,655 contracts), 39 (15,701 contracts), and 38 (13,634 contracts) strikes. Meanwhile, peak put open interest totals 13,762 contracts at the in-the-money March 38 strike. Another 11,519 puts reside deep out-of-the-money at the March 31 strike.
Turning to the technical outlook for ORCL stock…
Oracle shares have been in a solid uptrend since July 2013, rallying nearly 25% during this time frame. ORCL stock has enjoyed solid support at its 10- and 50-day moving averages throughout this uptrend. Shares are facing round-number resistance in the $40 region, while the $38 region (home to ORCL’s 50-day trendline) provided key support until yesterday’s broad-market selloff.
Weakness in the broader market is certainly a concern heading into Oracle earnings. However, shares are now nearing oversold territory, which could mean that ORCL stock has the potential for a modest post-earnings pop — especially if cloud services are on track.
With March implieds pricing in a potential post-earnings move of about 5%, traders looking to capitalize on a rebound for ORCL stock might want to consider an April 37/39 bull call spread.
This spread was last offered at 92 cents, or $92 per pair of contracts. Breakeven lies at $37.92, while a maximum profit of $1.08 is possible if ORCL closes at or above $39 when April options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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