Analysts Say Oracle's Outlook Is Uncertain Following Earnings Beat

Oracle Corporation ORCL shares dropped Friday morning despite the company reporting a fiscal third-quarter earnings beat and providing fourth-quarter guidance that exceeded Wall Street’s expectations. Investors may be concerned about the company’s revenue numbers, which were down 1 percent in the third quarter. Oracle also guided for revenue to be flat to down 2 percent in the fourth quarter.

Several analysts have weighed in on Oracle’s quarter. Here’s a sampling of what they had to say.

Revenue Growth Woes

BMO Capital Markets analyst Keith Bachman said he doesn’t believe Oracle can improve its revenue growth rates in the near future.

“Therefore, we do not think Autonomous database or gradual unfolding of the cloud ERP market will help Oracle’s growth in FY20,” Bachman wrote in a note.

Oppenheimer analyst Brian Schwartz said Oracle is a cheap stock, but nothing about the third-quarter report changes the narrative.

“While we commend the capital returns to shareholders via buybacks and a higher dividend, we think F3Q results are unlikely to change the current narrative on Oracle, which is that the company is facing challenges in trying to mitigate infrastructure share losses from multifaceted headwinds,” Schwartz wrote.

UBS analyst Jennifer Lowe said constant-currency revenue growth of 3 percent in the quarter cleared a low bar of expectations and was a slight improvement from the previous two quarters.

“We think shares remain range-bound until improving growth becomes more apparent in revenue results,” Lowe wrote.

Silver Linings

Wells Fargo analyst Philip Winslow said cloud services and license support revenue exceeded expectations and operating margin was also better than expected.

“As the headwinds from the transition to the cloud abate relative to the increase in recurring subscription revenue and as customers increasingly lift-and-shift database workloads to Oracle Cloud, we believe that Oracle can accelerate revenue and operating income growth in FY2020 and beyond,” Winslow wrote.

Raymond James analyst Michael Turits said Oracle will likely continue to buy back stock aggressively, though likely not at its recent $10 billion per-quarter pace.

“While consolidated low single digit CC top line growth has been modest, with F19E EPS growth at 13%, at 14.3X F20 EPS we view ORCL as attractively valued relative to the S&P 500 at 16.0X NTM and see opportunity for long term top line acceleration as Oracle's app mix shifts toward Fusion SaaS and we begin to see the impact of both the autonomous database and Oracle's second generation cloud infrastructure (OCI),” Turits wrote.

Rosenblatt Securities analyst Marshall Senk said investors will need to continue to be patient as Oracle’s cloud business accelerates.

“The best news here is that the base remains stable, both our research and the numbers point to on-prem customers hanging around as they evaluate cloud moves for both packaged and custom applications,” Senk wrote.

Uncertain Outlook

JMP analyst Patrick Walravens said Oracle CEO Larry Ellison has been buying up shares of stock and reportedly has been more involved with the company as of late, potentially hinting at a desire to take the company private.

“Mr. Ellison remarked in 2015 how ‘brilliant’ Michael Dell and Jim Davidson were for taking Dell private and then buying EMC,” Walravens wrote.

KeyBanc analyst Brent Bracelin said $35 billion in buybacks should help support EPS growth.

“We see an alliance with Google as one strategic option to accelerate Oracle's cloud presence,” Braclin wrote.

Wedbush analyst Steve Koenig said there were no big surprises in the report, but cash flows were a bit weaker than anticipated.

“Our take is that ORCL is now over the hump in transition its applications business to the cloud, but the company’s progress in cloud database and platform is still nascent, and the timeline for meaningful progress is uncertain,” Koenig wrote.

Ratings And Price Targets

• BMO has a Market Perform rating and $53 target.
• Wells Fargo has an Outperform rating and $60 target.
• JMP has a Market Perform rating and no target.
• UBS has a Neutral rating and $54 target.
• KeyBanc has a Sector Weight rating and no target.
• Wedbush has a Neutral rating and $52 target.
• Raymond James has an Outperform rating and $57 target.
• Rosenblatt has a Neutral rating and $51 target.
• Oppenheimer has a Perform rating and no target.

Oracle's stock traded around $52.92 per share at time of publication.

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