What Does Wall Street Have To Say About Oracle's Earnings Report?

Wall Street analysts can't reach a consensus on how investors should react to Oracle Corporation ORCL's stock after the company released its fiscal first quarter earnings results.

Oppenheimer: Good Results, Not So Good Outlook

Oracle's earnings report was "good" as a whole, with a revenue beat and SaaS revenue of $1.089 billion that grew 62 percent year-over-year, Oppenheimer's Brian Schwartz said in a note. But on the other hand, the company's fiscal second quarter guidance was mixed as SaaS, PaaS and IaaS revenue growth were guided to be between 41 and 45 percent, below the 48 percent analysts were already modeling.

Oracle's management removed the ARR cloud bookings and new customer wins metrics, which may imply a "soft sales quarter" ahead, the analyst said. Also, management didn't offer any new commentary on its previous fiscal 2018 double-digit growth PF EPS guidance.

"While the valuation catch-up for Oracle this year has been impressive, we think the inflation to the multiples is now mostly behind the stock," the analyst said. "We also see risks to sentiment lurking from possible large M&A activity and slowing SaaS/PaaS/IaaS revenue growth."

Schwartz maintains a Perform rating on Oracle's stock with no assigned price target.

UBS: Encouraging Report But Mixed Guidance

Oracle's earnings report were decent, especially when considering that the fiscal first quarter is typically slower, UBS' Fatima Boolani said in a note. But, similar to Oppenheimer's Brian Schwartz, Boolani said the company's outlook isn't as strong.

Of particular note, Oracle's fiscal second quarter cloud revenue guide of 39 to 43 percent growth represents a deceleration from 51 percent in the fiscal first quarter and also falls short of the 48 percent growth figure analysts were looking for, she said. While the deceleration is attributed to the anniversary of the NetSuite acquisition, cloud revenues are still slowing from 39 percent in the fourth quarter of 2017 to 28 percent in the first quarter 2018 to 24 percent even when excluding the acquisition, according to UBS.

The stock still looks attractive on a valuation basis, Boolani said. The analyst's Buy rating and $57 price target are based on a 19x P/E multiple, modestly ahead of its 10-16x historical range, yet still at a discount to some of its peers at 20 and 21x — and the broader market at 22x.

Credit Suisse: Upside Ahead

Credit Suisse's Brad Zelnick listed six aspects of the Oracle earnings report which investors should like and three others that he said investors should like less.

The factors Zelnick said are favorable to investors are:

• The strongest organic revenue growth (3.5 percent) since 2015.
• Support revenue rose 2 percent and is expected to remain positive throughout the year.
• License revenue's 6-percent decline was better than the 10 percent expected and the 12-percent decline the Street was modeling.
• An 80 percent SaaS gross margin target commitment during fiscal 2019.
• Platform and infrastructure grew 3 percent.
• A new focus on artificial intelligence.

The following were highlighted as factors investors should be wary of:

• Cloud revenue guided below Street expectations.
• PaaS gross margin dipped in the quarter but should rebound.
• The quarter was one of transition if not for foreign exchange benefits. 

Zelnick maintains an Outperform on Oracle's stock with a $62 price target.

BTIG: Moving Parts Support Bullish Stance

Oracle's earnings report was "solid," but the stock's performance will be impacted by  "disappointing" fiscal second quarter guidance, BTIG's Joel Fishbein, Jr. said in a note.

In fact, the cloud unit's growth guidance likely suffered from "elevated expectations,"but that doesn't take away from the stock's long-term story, Fishbein said.

Oracle's growth in the cloud segment will serve as an offset for an expected decline in new software license sales, the analyst said.

When combined with expectations for accelerated earnings per share growth, the stock will likely benefit from multiple expansion moving forward, according to BTIG. The firm maintains a Buy on Oracle with a $58 price target. 

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