Thursday, December 10, 2009

Broadpoint Amtech says you MUST own Oracle (ORCL)

Broadpoint Amtech is out this morning pounding the table on Oracle shares, saying they are a "must-own" tech stock for 2010.


While checks indicate continued improvement in its sales pipeline, they expect the co to remain conservative and to issue largely in-line Q3 guidance. Their checks with large system integrators indicate a meaningful increase in new business and IT initiatives in recent months. With its overall cost basis remaining largely flat from F1H, they believe any material upside in its rev will likely lead to meaningful earnings upside; they have a $30 target on ORCL.

Oracle has one of the world's most reliable cash flow streams, which is why I'd agree with Broadpoint's bullishness. A peek at Oracle's recent 10q also shows that pretax cash flow covers their interest payments nearly 12times over:

Oracle's Free Cash Flow Yield (FCFY) is about 8%, and after netting out $4 per share in balance sheet cash the "net" FCFY is about 10%.

So is that 8% (or 10% net of cash) FCFY attractive enough? I'd say YES. If Broadpoint is correct that F2010 and 2011 estimates are conservative, then those FCFY yields will be even higher. And Oracle's debt due 2039 is yielding about 5.6% right now, a decent argument that the company's cash flow yield does not need to be as high as it is now.

Copyright 2009 AlphaNinja

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