Analyst Prophesy A Return To Growth At Oracle

D.A. Davidson analyst Jack Andrews believes Oracle Corporation ORCL has reached the crossover point and he expects the company to return to growth. The brokerage reiterated its Buy rating and $52 price objective.

On the cloud strength, the analyst pointed out that SaaS & PaaS revenue grew 65 percent year-over-year in FY4Q16, which was an acceleration from FY3Q16's 56 percent growth. Its bookings were up 52 percent and the company added 1,640 new SaaS and 2,005 new PaaS customers in the quarter.

Most interestingly, the brokerage pointed out that both SaaS & PaaS gross margin expanded ~586bp sequentially in FY4Q16 to 57 percent, and management expects margins to expand further. Similarly, its renewal rates continued to enhance, i.e. over 200 bp year-over-year.

"Given accelerating cloud momentum, raising FY17 revenue and lowering EPS; introducing FY2018. Our FY2017 revenue and EPS estimates are now $39.028 billion and $2.76, previously $38.171 billion and $2.91, respectively. Introducing FY2018 revenue and EPS estimates of $41.035 billion (+5.1 growth YoY) and $3.03 (+9.6 growth YoY)," wrote the analyst to the clients.

Similarly, Andrews pointed out the optimism of the Management about IaaS. He said, "ORCL has completed a build-out of next generation data centers (lower cost, better security, and better performance) and is seeing demand from both existing SaaS customers as well as legacy database customers running custom apps. Early adoption of R2 of ORCL's 12C database should aid this ramp."

The analyst pointed out the two possible catalysts. While the first is on the continued bookings growth acceleration in YOY revenue uptick, the second was significant currency headwinds.