Can Oracle Hold Its Momentum?

Shares of Oracle (NYSE: ORCL  ) are up 23% since closing at $29.42 on Nov. 14. For that matter, since early September, the company has added $13 billion in market cap. And looking back farther, since reaching a low of $25.33 last May, the stock has surged 43%. And yet, shares are still making new 52-week highs.

The fact that the shares have soared so quickly have caused investors to wonder if there's still room here to profit. While some stocks often take off and never look back, especially those in tech, Oracle has consistently given investors plenty of second chances to buy. And now is just as good a time as any, because Oracle's now packing heat.

Where's the "new" Oracle going?
We can't talk about Oracle's momentum without first knowing when and where it started. I've highlighted what the stock price has done over the past several months, but the company has done everything in its power to deserve the optimism, including a beat on both the top and bottom lines in the second quarter, which also included an 18% increase in profits.

However, the most impressive aspect of the report was the 17% surge year over year in  software licenses and subscriptions business -- enough to exceed management's own bullish projections. This suggests that Oracle's cloud strategy is performing well, despite what bears may think. However, Oracle is a much different company today -- helped by its recent acquisitions of Acme Packet (UNKNOWN: APKT.DL  ) , which has a 40% share in the session border control, or SBC, market.

Oracle now has a way to offer enterprise clients secure network sessions that supports multiple applications. What's more, Acme Packet's product portfolio, which includes the Net-Net line of devices, now gives Oracle another way to better compete against enterprise rival Cisco. For that matter, Oracle's ability to now pivot off its Cloud portfolio puts current rivals such as Salesforce.com (NYSE: CRM  ) and IBM (NYSE: IBM  ) at a disadvantage.

The ability to now attack new markets is one thing, but Oracle is able to leverage what the database giant already does well, especially considering the growing demand among service providers looking for ways to engage their customers in more effective ways. Hence, another shot at Salesforce and IBM. Oracle was always known as a savvy acquirer, but Acme Packet just might have been Oracle's signature piece to its one-stop-shop enterprise model -- a way to create separation from core rivals.

Great expectations
We can make all of the predictions we want about earnings. Whether Oracle beats estimates or produces results that arrives in line with expectations, everything will still hinge on how the company guides for the rest of the year and possibly fiscal 2014. I say this to caution investors to not be so focused on what it reports this quarter.

Management guided for Q3 earnings per share of $0.64 to $0.68 -- slightly higher than $0.62 per share earned a year ago. Revenue growth is projected to come in the area of 1% to 5% -- ranging from $9.1 billion to $9.5 billion. Although these are not breathtaking projections, investors have to keep in mind that Oracle has not posted historically strong seasonal Q3 numbers.

Besides, as I've I said, this is a story about where the company is heading. In that regard, it's worth noting that Oracle historically has a seasonally strong fourth quarter, which is why guidance will be so important. Not only did the stock rise more than 5% following the fiscal Q4 2012 results, but as noted, that was when the shares began its run of more than 40%. A repeat performance would not surprise.

Stock is cheap
Even though shares are currently at their 52-week high, I believe the stock's still cheap. At $36 per share, the stock is trading at just 13-times forward earnings estimates for fiscal 2013 and, at only 12 times fiscal 2014 projections, below Oracle's historical averages. At the very least, we can argue that the stock is trading in line with estimates. But given the advantages that recent acquisitions will present over Salesforce and IBM, I wouldn't bet that these shares will remain discounted for very long.

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