Oracle Corporation (ORCL) Earnings Puts These ETFs In Focus

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December 24, 2013 1:54pm NYSE:IGV NYSE:IYW

in focus spotlightAfter missing revenues for the past three consecutive quarters, tech bellwether Oracle Corporation (NYSE:ORCL) seems back on track with better-than-expected results for the second quarter of fiscal 2014.


The company reported earnings of 66 cents per share, outpacing the Zacks Consensus Estimate by two cents and the year-ago earnings by a nickel. Revenues rose 2% year over year to $9.28 billion and comfortably surpassed our estimate of $9.18 billion.

Improving hardware operations as well as stable revenues for software license updates and cloud software subscription helped the company to beat on the top line despite the difficult comparisons. This suggests that the software giant is on the verge of a recovery amid slow IT spending.

The company’s database business, low cost engineered systems (Oracle Virtual Compute Appliance), and higher subscription revenues would continue to fuel growth. Further, Oracle is shifting to the fast-growing cloud market and is revamping its hardware business, which would be an added advantage to its long-term growth potential.

With that being said, Oracle expects revenues to grow in the range of 2%–6% (in U.S. dollar terms) for the third fiscal quarter buoyed by 1%–11% growth in new software license and cloud subscription revenue and negative 2% to positive 8% growth in hardware business. It also projects earnings per share in the range of 68–72 cents, which is slightly above the Zacks Consensus Estimate of 67 cents.

Impressed by the revenue beat and the better hardware business, several analystsrevised their target prices upward on the stock. This move swept away the negative sentiments on the software maker and left many feeling bullish on the stock’s future.

In fact, ORCL shares soared nearly 7% and reached a multi-year high of $36.96 on Thursday trading on elevated volume of three times more than the normal trading day. However, the shares were up 6%, a little lower than the high, at the close.

The stock currently has a Zacks Rank #2 (Buy), suggesting that this trend can definitely continue in the near future (read: Santa Claus Rally: 3 ETFs on the Nice List).

ETF Angle

Given the strength in Oracle and the solid run-up in its share price, investors could make a concentrated bet on the following three ETFs. These products have the largest allocation to the software giant and could be worth a look for investors seeking to ride out the recent surge in the stock.

iShares S&P North American Technology-Software Index Fund (NYSEARCA:IGV)

This ETF provides exposure to the software segment of the broad U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a small basket of 58 securities with Oracle taking the second spot at 8.58% of total assets.

The fund is quite popular with an AUM just below one billion dollars, while volume is moderate as it exchanges nearly 78,000 shares a day. The product charges 48 bps in fees and expenses and was up about 3.70% in the past five trading sessions. IGV has a Zacks ETF Rank of 3 or ‘Hold’ rating with High risk outlook.

Market Vectors Wide Moat ETF (NYSEARCA:MOAT)

This ETF follows the Morningstar Wide Moat Focus Index and provides equal-weighted exposure to 20 U.S. securities that have a unique sustainable competitive advantage in their respective industries. Here, Oracle occupies the sixth position in the basket, accounting for 5.24% of total assets.

The product is pretty spread out across various sectors with healthcare, financials, industrials, and information technology taking the double-digit allocation. The fund has accumulated $516.4 million in its asset base while it sees a good volume of nearly 134,000 shares a day. Expense ratio comes in at 0.49% and the fund added nearly 2.7% over the past five days.

iShares Dow Jones US Technology ETF (NYSEARCA:IYW)

This is easily the most popular ETF in the broad tech space with AUM of nearly $3 billion and average daily volume of roughly 317,000 shares. The product tracks the Dow Jones US Technology Index, giving investors exposure to 142 U.S. equity stocks while charging 45 bps in fees and expenses (read: Guide to China Technology ETFs).

Oracle takes the seventh spot in the basket with 4.32% share. The product is heavily skewed toward the hardware and equipment segments, as these make up for half of the portfolio, while software and computer services take the remaining.

IYW returned 1.5% in the past five trading sessions. The ETF has a Zacks Rank of 2 or ‘Buy’ rating with High risk outlook.

This article is brought to you courtesy of Eric Dutram.


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