The Core Reasons To Buy Oracle Haven't Changed

Despite a more than 5 percent decline in Oracle Corporation ORCL's stock in reaction to its earnings report, the longer-term bullish case for owning the stock remains unchanged, according to analysts at Bank of America.

The firm's Kash Rangan maintains a Buy rating on Oracle's stock with an unchanged $62 price target.

Oracle's earnings report came in better than expected, but investors were concerned with Oracle's cloud revenue guide for the fiscal second quarter, the analyst noted. Specifically, the company's guide at the midpoint implies a 43 percent growth, which is short of the 48 percent expected.

This could be attributed to the inclusion of Netsuite's business, which is causing "optics in the numbers" as Oracle has yet to disclose Netsuite's expected contribution so the Street may have been over-estimating SaaS organic growth figures.

Meanwhile, Oracle's earnings as a whole demonstrated why investors should remain confident in the long-term story, Rangan said. The analyst highlighted several reasons, including:

• License fell just 7 percent versus expectation for a 14 percent decline.
• Fourth consecutive quarter of operating income growth.
• Cloud ARR bookings rose 40 percent and cloud deferred revenue rose 53 percent.
• SaaS cloud gross margins improved from 59 percent last year to 66 percent.
• Growth in the apps business accelerated from 8 percent last year to 17 percent.

Bottom line, these catalysts are expected to help Oracle deliver a mid-single digit software revenue growth rate and a double-digit earnings per share growth rate going forward.

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Image credit: Tim Dobbelaere from Ieper, Belgium (Oracle Databases Uploaded by Flominator), via Wikimedia Commons