Analysts Take More Constructive Views on Oracle After Earnings

Oracle Corp. (NYSE: ORCL) released its earnings on Thursday after the close of trading. While impressive growth was seen in Oracle’s cloud business, Larry Ellison’s vision of overtaking the cloud leaders like Amazon has yet to come close, even if cloud revenues have no reached $1 billion at the quarterly level.

The enterprise software giant reported adjusted earnings per share (EPS) of $0.61 and showed that its adjusted revenue was $9.07 billion. A year ago, the company reported adjusted EPS of $0.63 on adjusted revenue of $9 billion, and the Thomson Reuters consensus estimate was $0.60 EPS and revenue of $9.11 billion.

Oracle also showed that short-term deferred revenues totaled $7.4 billion. This was up 6% in U.S. dollars and was reportedly up 8% year over year in constant currency. Our original look at the earnings showed why investors were disappointed on the surface.

24/7 Wall St. has seen several analysts chime in with their views on Friday. Most are neutral or somewhat cautious, but there remain some quite positive views as well, with calls for handy upside ahead.

D.A. Davidson maintained its $52 target, while Stifel, with a Buy rating, lowered its target to $44 from $45. Wedbush Securities rates the stock at Neutral and raised its price target to $42 from $41.

The Wedbush note said that Oracle’s second-quarter results and guidance weren’t inspiring, and dollar strengthening is pushing out the timeline for EPS stabilization. The analyst noted that the company continues to execute inconsistently relative to guidance, even when adjusted for currency, and that is giving investors ample reason to question its bullishness on its cloud transition. They are at least incrementally more positive for a few reasons:

(1) the mechanics of the transition suggest EPS should begin to grow next year, at least in constant-currency terms;
(2) database sales appear to be turning up, as our checks suggest ORCL has expanded its use of unlimited license agreements (ULAs) to lock in database customers and prevent bring-your-own-license (BYOL) of Oracle to Amazon AWS;
(3) valuation looks cheap, especially if Oracle can begin to grow earnings and cash flow.

Jefferies has a Buy rating and a $51 price target. The firm’s synopsis said:

Oracle’s second quarter headline results and guidance were largely in line, but with complexities below the surface that muddy the results. We have never seen such an aggressive Cloud transition with such velocity, making it difficult to predict relevant metrics, but they’re generally progressing in the right direction. We also expect 12cR2 to be a major multi-year database product cycle and its imminent on-prem availability will be a catalyst that develops over time.

Oppenheimer has a Perform rating, so no formal price target. The firm lowered current year EPS estimates from $2.72 to $2.60 and lowered next year’s estimates from $2.95 to $2.86 per share.

Also note that Oracle’s co-CEO, Safra Catz, will also join Donald Trump’s executive committee for the transition team.

The consensus EPS estimate for fiscal year 2017 was last seen $2.39, and that generated roughly 17 times expected earnings, according to Nasdaq data for Oracle’s valuation. The 12-month consensus price target was $44, and the range of analyst targets for Oracle was $40 to $52.

Oracle closed down two cents at $40.86 ahead of earnings, but the shares were trading down 4.6% at $38.98 Friday morning. Oracle has a 52-week range of $33.13 to $42.00.