Pacific Crest Stays On The Sidelines Of Oracle Ahead Of Q1 Results

Oracle Corporation ORCL would likely report mixed fiscal Q1 results, with the robust adoption of Oracle Cloud partially offset by declines in new software license, hardware and services, Pacific Crest’s Brent Bracelin said in a report. He maintained a Sector Weight rating on the company.

Analyst Bracelin mentioned three key areas of investor focus:

1. Timing of an operating margin recovery after three years of declines
2. Update on the pending acquisition of NetSuite Inc N
3. Sustainability of robust growth in the SaaS and PaaS segments

Revenue Growth To Return

Bracelin expects Oracle to post low-single-digit revenue growth, following a year of declines. The revenue estimate of $8.7 billion is expected to be driven by double-digit growth in Oracle Cloud, specifically the SaaS and PaaS segments.

Oracle Cloud Prospects

The analyst expects growth of the Oracle Cloud segment for SaaS and PaaS to continue to exceed 70 percent y/y. He added, however, that although this growth is impressive, Oracle Cloud still contributed below 10 percent of the company’s total sales.

EPS Growth

EPS is estimated at $0.54, representing 8 percent growth. Bracelin wrote that most of the growth would be driven by a slightly lower tax rate and increased share buybacks, which have reduced shares by an estimated 5 percent from the prior year.

“Operating profits could remain in a flat-to-declining trend y/y, partially impacted as a portion of revenue shifts toward a cloud subscription model,” the analyst added.

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