Canaccord Genuity Analyst Richard Davis said in a new research note that the 10 percent decline in Oracle Corporation (NYSE: ORCL) since its earnings report is an opportunity for investors to "buy the dip." Davis attributed the sell-off to lower-than-expected revenue growth – which was also depressed by currency headwinds – as well as a pure earnings shortfall. But, looking into the numbers, Davis said that the miss was attributed to a positive trend: "the firm's transition to the cloud is happening faster than expected." That leads Oracle to capture deferred earnings instead of up-front licenses.
Over the long term, Canaccord said that it "could not stress enough" that the cloud business is two or three-times more profitable to the company. Davis argued that Oracle will "realize a several-point multiple expansion." Currently, the company trades at 12x 2017 free cash flow.
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27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Though Davis reaffirmed his view, he did lower earnings expectations for the firm. Canaccord's Q1 2016 EPS expectation dipped $0.02 to $0.52, while the FY2016 and FY2017 estimates were trimmed by $0.05 and $0.03, respectively. Davis noted that the analysis includes "conservative" expectations for deferred revenue growth, which could lead to a higher FCF valuation.
Over the 12 to 18 months, the firm believes that Oracle will reach a $50 price target, compared with current price near $40.20 – 24 percent upside. Year to date, the company has lost 10.5 percent in value, most all of which has come since the mid-June earnings report. Over the past 52 weeks, Oracle has traded between $35.82 and $46.71.