Thursday, March 19, 2009

Here come the Dividends

I know I am a little retorical, however here is what happened in the crisis we had in Aussie in the 90's. Companies went from fixating on growth to distributing dividends. The following from JP Morgan, Oracle they just announced a new dividend. Wait for the rushing sound of others following.


p.s did you know I love software

J.P. Morgan Research North America Equity Research

Oracle Corp.: All Boxes Checked

Oracle reported impressive results in the face of the obvious (a deteriorating macro backdrop and increasingly negative currency effects since guidance was given) and the expected (resulting demand softness in both its applications and infrastructure software businesses).
  • *  All boxes checked. ORCL did everything it needed to and more in regards to what we believe most were looking for: 1) license was better than most expected, 2) maintenance grew nicely, both year-over-year and sequentially, and 3) the bottom line was solid. Strong cash flow was up 17%.

  • *  Strong Feb-Q. Non-GAAP EPS was $0.35 (with $0.01 from a one-time tax benefit) on license of $1.52B (-6%, +3% cc) and total revenue of $5.45B (+2%, +11% cc), versus consensus of $0.32, about $1.45B, and $5.46B. The results are probably even better than appears, since we believe most investors expected results below the official estimates.

  • *  Prudent (and conservative) guidance. We believe that guidance assumes close rates at the low end of the range experienced for the F4Qs over the last ten years. Even with this assumption, guidance was probably better than what the collective investor base was looking for. We’re reducing our estimates to come in line with guidance.

  • *  In a time of dividend cuts, ORCL announces a new dividend that reflects its confidence in the sustainability of its free cash flow. We view this as a very strong statement, in stark contrast to the announced dividend cuts by what have historically been stalwart institutions. We do not believe that this will restrict Oracle’s ability to continue its strategic acquisition strategy at appropriate prices.

  • *  Derivative effects. While we do NOT view ORCL as a good gauge on the software sector, we do believe the stocks in the space will benefit for at least the short term from ORCL’s results, given its position as the second largest pure software company in the world.

  • *  Reiterate Overweight and $23 price target based on our DCF