MKM Believes Oracle Could Up Its NetSuite Offer Price To $112 Per Share

With Oracle Corporation's ORCL fiscal Q2 earnings coming out on Thursday, Kevin Buttigieg of MKM Partners noted that downside to shares should be limited at this point with the stock trading at 15x FY17 EPS and upward pressure on margins.

Buttigieg maintained his rating on the company at Neutral, with a price target of $42.

Q1 Earnings Focus

The analyst noted that "focal points again this quarter will be SaaS & PaaS revenues & billings, New License revenues and operating margins." Buttigieg said investors need to see "accelerations in the former and stabilization in the declines of new license revenues that combined would help drive operating income/margin and EPS growth."

Could Boost NetSuite Offer

The firm pointed out that Oracle's 9x EV/sales multiple appears "fair" and is "in line" with the high end of multiples for peer acquisitions. However, Netsuite's N single largest independent shareholder, Demandware, thinks the price is "too low" because of expected "synergies and strategic value" to Oracle.

Could a price north of $109 per share be negotiated? Possibly, since NetSuite initially sought $125 per share while Oracle offered $100 per share, which implies the "possibility of $112.50" a share. Keep in mind, the analyst said a final price for NetSuite "will ultimately be decided based on a negotiated value between the parties."