Oracle Downgraded At FBR On Headwinds, Lack Of M&A

• Oracle Corporation ORCL shares have surged 7 percent in the last one month, rising from a low of $36.60 on October 21.
• FBR & Co’s Daniel H. Ives downgraded the rating on the company from Outperform to Market Perform, while maintaining the price target at $44.
• Growth headwinds and the lack of M&A limit upside to the company’s shares, Ives said.

Oracle’s shares are currently trading 8 percent within the price target and there is limited upside potential in the near term, analyst Daniel Ives commented. He added that Oracle faced growth headwinds and the secular challenges to its "bread-and-butter" database business continued to be “a dark cloud over the company until it can prove otherwise.”

Oracle has offered “some signs of success” on the cloud in 2014. Ives mentioned that 12c could stimulate demand “across the stack and overall customer base over time.” He added, however, that this continues to be a small contributor to overall revenues.

The analyst added that new license declines and a model transition to SaaS had created “a painful period for investors over the past 12 to 18 months” and there were no signs of this abating.

In the report FBR & Co noted, “Although we have patiently awaited a turnaround story at Oracle, and the company has talked a great talk, the lack of consistent results, an empty M&A strategy, mixed checks in the November quarter so far, and major secular challenges from the likes of Amazon Web Services are hard to ignore, and thus make it tough to be bullish on the name at current levels.”

The total revenue and pro forma EPS estimates for FY2Q16 have been reduced from $9.5 billion to $9.1 billion and from and $0.61 to $0.60, respectively, to reflect some further headwinds.

The total revenue and pro forma EPS estimates for FY16 have been reduced from $38.4 billion to $37.6 billion and from and $2.67 to $2.61, respectively.

The total revenue and pro forma EPS estimates for FY17 have been reduced from $39.5 billion to $38.6 billion and from $2.88 to $2.85, respectively.