Goldman Is Buying Oracle

• Shares of Oracle Corporation ORCL are down 17 percent year-to-date and trading near their 52-week low of $35.14.
• Goldman Sachs’ Heather Bellini maintained a Buy rating on the company and added it to the Conviction List, while raising the price target from $45 to $47.
• Investor concerns around the company’s ability to shift to cloud are likely to ease soon, with field checks pointing to robust cloud revenue growth, Bellini stated.

Oracle’s shares are down 17 percent year-to-date, versus a 2 percent decline in the S&P. Analyst Heather Bellini mentioned that the decline is attributable to investor concerns around the company’s ability to shift to the cloud and its financial impact.

Bellini pointed out that the market is doubtful about Oracle’s FY16 revenue growth guidance of 50 percent, gross margin target of 60 percent for cloud and the bookings target of $1.5-$2.0 billion.

“Our field checks with partners indicate that ORCL’s cloud revenue growth will accelerate in F2H16,” the analyst mentioned, while adding that this is expected to result in expansion in multiples as investors become more confident about the company’s successful transition to cloud.

Catalysts for Oracle include its F2Q16 earnings print, expected in mid-December. Oracle’s guidance is expected to indicate a winding down of promotional pricing and that customers are renewing at higher ARR levels.

Bellini believes that improved execution of Oracle’s FY16 targets will results in accelerating cloud revenue growth and gross margin expansion. The company’s multiples are also expected to expand with improved cloud execution.