S&P: Still Buy Oracle

Analyst Jonathan Rudy notes the software outfit's strong free cash flow and high operating profit levels. Plus: Opinions on Disney, Lucent, and more

Oracle (ORCL ): Reiterates 4 STARS (buy)

Analyst: Jonathan Rudy, CFA

Oracle's February-quarter operating EPS of 16 cents, vs. 12 cents, is a penny better than our estimate. Results exclude acquisition and restructuring charges associated with the PeopleSoft acquisition. Revenues of $2.95 billion were slightly below our forecast. Database new license sales rose 12%, which we view as solid. We are increasing our fiscal 2005 (ending May) operating EPS estimate to 63 cents from 62 cents, and see 76 cents in fiscal 2006. With our view of its strong free cash flow, and high operating profit levels, we believe database market leader Oracle remains attractive at a discount to peers on price-to-earnings and p-e-to-growth metrics.

Walt Disney (DIS ): Reiterates 4 STARS (buy)

Analyst: Tuna Amobi, CFA, CPA

At an analysts' meeting yesterday, CEO Eisner, COO Iger, and CFO Staggs, held a Q&A touching on film strategy, Pixar, digital distribution, NFL talks, free cash deployment, corporate governance, and the possible split-up of Viacom. Iger also affirmed the goal of double-digit earnings per share growth through fiscal 2007 (ending September). The key takeaway for us was that major strategic changes are unlikely as Iger transitions to the CEO role effective Oct. 1, 2005, with key priorities restated to include creativity and innovation, leveraging technology advances, and further international expansion (India and China).

Lucent Technologies (LU ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon, CPA

We are lowering our 12-month target price to $3 from $4 to reflect our growing concern about capital spending by Lucent's customers. While long-term trends are positive for broadband and advanced wireless networks, we believe M&A may have delayed capital spending for calendar 2005's first half, or longer. Lucent is also exposed to a mix shift from legacy to next generation networks, as well as an above-average industry sales mix of services that are dependent on Lucent product sales. Priced below peers at 15.2 times our fiscal 2005 (ending September) 18 cents earnings per share estimate, we would hold Lucent shares.

Compuware (CPWR ): Reiterates 3 STARS (hold)

Analyst: Zaineb Bokhari

Based on an 8-K filing detailing terms of its settlement with IBM (IBM ), we expect the first installment of IBM's purchase of software, maintenance and services from CompuWare to boost fiscal 2006 (ending March) revenue by $60 million. We believe Compuware's aggressive rhetoric and 3-year legal battle has won it the right to partner with IBM. In our view, terms read like a partnership agreement between the two software outfits, not a legal settlement. We are keeping our 36-cent estimate until Compuware provides guidance, but under current margin assumptions we think the settlement could add one cent to the company's earnings.

Protein Design Labs (PDLI ): Reiterates 4 STARS (buy)

Analyst: Frank DiLorenzo, CFA

PDLI announced it will initiate a Phase II/III study of Nuvion in ulcerative colitis by yearend, with potential start of separate Phase III trial if certain protocols are met at interim analysis. This delays our expectation of potential completion of a final registration study by at least a year. We had given little value (about $1) to the Nuvion program in its current state and consider this a minor delay. We still see primary value for PDLI in its royalty stream and pending acquisition of ESP Pharma, subject to approvals. On a net present value analysis, our 12-month target price remains $24.

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