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Everyone's Talking About Oracle

Everyone's Talking About Oracle
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Oracle Corporation (NYSE: ORCL) reported better-than-expected earnings for its first quarter on Wednesday, but sales fell short of expectations.

At the same time, the company also issued forward-looking guidance that may have spooked investors, as shares were trading lower by more than 3 percent by mid-Thursday afternoon, while major indices remained relatively flat.

Wedbush: Is The Bar ‘Low Enough?'

Steve Koenig of Wedbush commented in a note that Oracle's first quarter results were "slightly disappointing" with software revenue growth coming in at 6 percent – the low end of the company's 6 to 8 percent guidance range.

The analyst also highlighted the company's CEO Safra Catz who said "internationally there is a lot of chaos."

Koenig also noted that Oracle "bit the bullet" and "unsurprisingly" issued guidance that was "well below" consensus estimates, even when adjusting for currency. Specifically, the analyst highlighted the company's 50 percent constant-currency revenue growth within SaaS/PaaS, which fell short of his 58 percent estimate and management's prior commentary in the fourth quarter and called for as much as 60 percent growth.

Related Link: Oracle Lower After Q1 Sales Miss

Nevertheless, Oracle's "willingness" to "deliver bad news" helps address some concerns over owning Oracle's stock. However, the analyst still expects margin pressures may prove to be "bigger than recognized by the Street" and potentially "even the company" itself. On the other hand, the company is still "best positioned" among the major enterprise stack vendors to continue adapting to market and technology changes.

Bottom line, the company has now "cleared the air" with its guidance, but "is the bar low enough?"

Shares remain Neutral rated with an unchanged $40 price target.

FBR: ‘Better Than Feared' Q1, Some Challenges Ahead

Daniel Ives of FBR & Co. commented in a note that Oracle's first-quarter print was "better-than-feared" given a "painful" cloud transition along with "ongoing challenges" for the company's traditional license business.

However, Ives noted that Oracle's newer cloud solutions (IaaS, SaaS, PaaS) have been a "major focus" for investors and "remain a key ingredient" in the company's success. The analyst added that Oracle now faces a "critical window of opportunity" to realize success in the cloud as the company remains "laser focused" on re-accelerating top-line growth.

Shares remain Outperform rated with an unchanged $44 price target.

Morgan Stanley: ‘Still Waiting For Take Off'

Keith Weiss of Morgan Stanley commented in a note that Oracle demonstrated "strong" bookings and billings growth in the SaaS, and PaaS business "aligns well" to his Overweight thesis. The "lengthening translation" of those strong bookings into revenue growth and a "larger than expected" impact on the income statement from the cloud transition has resulted in some "frustration."

Weiss also noted that the database cycle has "yet to materially ramp up" and provide the necessary support to software license revenue growth. Accordingly, the first-quarter print is unlikely to "significantly move investor sentiment."

On the other hand, Weiss pointed out some "notable glimmers of light," specifically: 1) Catz noted fiscal 2016 will be the "trough year" in terms of operating income, and the company should see income growth moving forward; 2) an expected ramp to 60 percent gross margin s in the SaaS and PaaS business exiting fiscal 2016 and 80 percent gross margins exiting fiscal 2018; 3) a "tacit" withdrawal from completion with AWS by forecasting a mid-single IaaS growth going forward.

Shares remain Overweight rated with a price target lowered to $45 from a previous $50.

DA Davidson: Ramp Expected With ‘Lots Of Moving Parts'

Jack Andrews of DA Davidson commented in a note that Oracle's "massive" increase in short-term deferred revenue ($9 billion-plus) adds to his conviction that a "significant ramp" in the bottom half of fiscal 2016 seems "reasonable."

Andrews also argued that long-term investors should "benefit" from owning Oracle shares as the company's transition to the cloud is starting to show "strong momentum." However, the transition to the cloud is "likely" to unfold over "several years" and could encounter several "bumps in the road" along the journey.

Shares remain Buy rated with an unchanged $52 price target (12-18 months) with a five-year price target of $61.

Citi: Setup ‘Looks Better'

Walter Pritchard of Citi commented in a note that while Oracle's low guidance was "significant," management is looking beyond the next quarter by issuing its guidance. The analyst added that doing so represents a "positive."

Pritchard highlighted three "silver linings" in the otherwise "underwhelming" quarter, including: 1) "taking off the table" the likelihood of material cuts to its outlook going forward; 2) a "stake in the ground" on margins, which was previously an "area of concern;" 3) accelerating trends in cloud revenue and "less worse" license declines in the bottom half of the fiscal year, which should "come into focus" as investors look toward the February and May quarters.

Bottom line, following the print, Oracle's numbers are now "more de-risked."

Shares remain Neutral rated with an unchanged $42 price target.

Elsewhere On The Street

  • Analysts at Barclays maintained an Overweight rating with an unchanged $48 price target.
  • Analysts at Canaccord Genuity maintained a Buy rating with a price target lowered to $47 from a previous $50.
  • Analysts at Credit Suisse maintained an Outperform rating and unchanged $50 price target.
  • Analysts at Wunderlich maintained a Hold rating with a price target lowered to $43 from a previous $47.
  • Image Credit: Public Domain

    Latest Ratings for ORCL

    Oct 2018NomuraMaintainsBuyBuy
    Oct 2018NeedhamInitiates Coverage OnHold
    Oct 2018Evercore ISI GroupDowngradesBuyIn-Line

    View More Analyst Ratings for ORCL
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