A Tough 5-Year Run For Oracle May Be Ending; JP Morgan Upgrades

Oracle Corporation ORCL finally met expectations in its Q3 report.

While the company has been plagued with challenges over the past five years, shares have also been under pressure, JPMorgan’s Mark R Murphy said in a report. He upgraded Oracle from Neutral to Overweight, while raising the price target from $42 to $51.

Oracle’s shares have appreciated 2.9 percent in the last two years, versus a 20.3 percent gain in the S&P500.

Making A Quarter

Oracle “made a quarter” for the first time in half a decade, Murphy noted. The company reported its FQ3 revenue at $9.27 billion, broadly in-line with consensus expectations. Proforma EPS came in at $0.69, beating the consensus estimate of $0.62, partly helped by a lower-than-expected tax rate.

Guidance

Oracle guided to FQ4 revenue growth of -1 percent to +2 percent year-over-year in constant currency terms, representing growth of -3 percent to 0 percent in USD, missing the consensus expectation of 0.2 percent year-over-year.

Proforma EPS guidance of $0.78-$0.82 in constant currency terms or $0.76-$0.80 in USD is essentially in-line with consensus estimates.

Related Link: Oracle Is At A Material Inflection Point

Reason For Upgrade

Murphy said that although “there is work to be done” and Oracle is now a “low-growth company,” the key reasons for the upgrade are:

1. “Crossing the Revenue Chasm: growth in cloud subscriptions is more than offsetting the license revenue declines, even organically, marking a key milestone,” the analyst wrote.
2. Survey Feedback Stabilizing: Oracle partners have started giving better feedback on the pace of business, Oracle’s momentum and vision, as well as expected practice growth ex-outliers
3. “Reaching Critical Mass of Recurring Revenue: Oracle’s recurring revenue mix has reached 70%, up from the 50s a few years ago and heading higher, and investors place higher multiples on stable, low-volatility revenue streams,” Murphy commented.
4. Potential for Double-Digit EPS Growth: Oracle projected double-digit EPS growth in FY2018, while [if achieved] would be the first period of such growth in six years.