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We expect application software provider Oracle Corp (ORCL - Analyst Report) to beat expectations when it reports fiscal third quarter 2014 results on Mar 18. Last quarter, it posted a 3.13% positive surprise. The company has posted an average positive earnings surprise of 2.41% over the past four quarters.  Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Oracle is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP or expected surprise prediction, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +1.49%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

The combination of Oracle’s Zacks Rank #3 (Hold) and +1.49% ESP makes us very confident in looking for a positive earnings beat on Mar 18, 2014.

What is Driving the Better Than Expected Earnings?

Oracle’s encouraging second-quarter results came as relief to investors as it proved that management’s turnaround initiatives were working.

Although government IT spending is expected to remain muted, improving macroeconomic environment in the Americas and Europe, the Middle East and Africa is expected to boost enterprise spending in the remainder of fiscal 2014. This will also boost Oracle’s top-line growth, going forward.

Moreover, the acquisition of the industry’s leading cloud-based big data platform, Bluekai will stimulate growth going forward by providing greater customer satisfaction. It will now be able to provide customers with the ability to build the richest user profiles combining information from first party and third party sources including media, advertising, social, and mobile sources.

Additionally, higher subscription revenues are expected to provide a recurring high margin revenue base, going forward. Additionally, improvement in sales force hiring will continue to boost bookings. However, this may hurt margins in the near term.

Further, stiff competition from the likes of IBM (IBM - Analyst Report), SAP AG (SAP - Analyst Report) and Microsoft  Corp (MSFT - Analyst Report) remains a major headwind in the near term.

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