Oracle Earnings Preview

It used to be a foregone conclusion that when Oracle ORCL reported it would blow earnings out of the water but over the past couple of years, that reputation has gone the way of Apple AAPL. Still, investors count this as one of those announcements that serves as a proxy for the technology sector.

Expectations

Oracle is expected to announce fiscal third quarter revenue of $9.38 billion—a rise of 3.5 percent year over year. Analysts polled by Thompson Reuters expect EPS of 0.66—a 6 percent year over year increase. Expect profit of 88 cents, a 7 percent increase and sales of $11.5 billion, up 5 percent.

Analyst Commentary

Analyst Matthew Hedberg from RBC Capital Markets said, "Results are likely to be highlighted by strong database sales, in-line results from their applications business and hardware will likely be down year-over-year but expected to grow in Q4…”

"We remain positive on the opportunity and the stock, as the company continues through the seasonally strong second half of the year,"

RBC reiterated it’s “Outperform” rating and upped its price target from $37 to $39.

CNBC technology reporter Jon Fortt said, “Oracle has been hiring like mad, telling its applications story to customers in an effort to lure business away from competitors. If the sales machine is still going, that suggests Oracle isn't just sounding bullish, it's making bullish plans.”

The Bear Case

This is a stock up 43 percent since May and, like the broader market indices, continues to print 52 week highs. Investors are cautious going into earnings because they know this means that the stock has to outperform or risk a profit taking sell off.

According to CNBC’s Jon Fortt, the May quarter is its strongest so forward guidance, it’s tone about software licensing going forward, and growth, particularly in the hardware and cloud segments is significant.

Technicals

The chart over past nine months is healthy. After a 30 percent gain from May to September, the stock entered a three month basing pattern serving to unwind overbought conditions. The upside then resumed adding another 20 percent. Currently, the stock is testing strong support at its 20 DMA, 50 DMA, and lower trend line—all of which converged to be within 1 percent of each other.

A break below these support levels could trigger a strong correction. Given its recent price action, traders should consider hedging to protect against a priced-to-perfection selloff post-earnings.