Drexel Hamilton Reiterates Buy On Oracle Following 'A Big Beat In The Cloud'

Oracle Corporation ORCL reported a 4Q16 revenue beat and raised its 1Q17 SaaS/PaaS cloud sales outlook. Drexel Hamilton’s Brian J. White reiterated a Buy rating for the company, with a price target of $51. The analyst commented that the “worst of this cloud transition is behind Oracle,” and the company seems to have “past the trough in its operating profit cycle.”

Oracle reported its 4Q16 non-GAAP sales at $10.6 billion, representing a 1 percent year-over-year decline, but ahead of the Drexel Hamilton and Street expectations of $10.46 billion. The pro forma EPS came in at $0.81, marginally short of the estimates of $0.82.

Progress In Cloud

“We are very encouraged by Oracle's progress in the cloud over the past 12–18 months and this momentum continued into 4Q:FY16,” analyst Brian White wrote. Oracle generated non-GAAP cloud revenue of $860 million in 4Q, significantly higher than the estimate of $822 million. The beat was driven by 67 percent y/y revenue growth for SaaS and PaaS and 8 percent for IaaS.

Related Link: Oracle Results Applauded By Barclays

Total software and cloud non-GAAP revenue was $8.44 billion, marginally beating the $8.36 billion forecast. Oracle added +1,600 new SaaS customers in 4Q and +2,000 new PaaS customers. Gross margin in SaaS and Paas improved to 57 percent in 4Q, from 51 percent in 3Q and 40 percent a year ago.

“Oracle now expects 1Q:FY17 SaaS/PaaS revenue growth of 75–80 percent versus "over 59 percent" as previously discussed in March…We are modeling 1Q:FY17 sales of $8.43 billion (Street is at $8.61 billion) and EPS of $0.57 (Street is at $0.59),” White added.