BMO Lowers Oracle Estimates, Stays Bullish

Oracle Corporation’s ORCL execution during its transition period from on-premise to cloud solutions has been inconsistent, and investor expectations remain relatively low.

BMO Capital Markets’ Keith Bachman said Oracle’s shares could appreciate if the company delivers a more consistent financial performance. He maintained an Outperform rating on the stock, with a price target of $45.

Inconsistent Performance

Oracle has delivered mixed results over the past two years relative to the consensus estimates. The company has missed consensus revenue estimates in seven of the past eight quarters, by an average of about 1 percent and $100 million. During this period, software licenses have declined by an average of 10 percent on a constant currency [CC] basis and by 14 percent on a reported basis.

Related Link: Oracle Is Past The Worst Of Its Cloud Transition

“We believe ORCL needs to consistently meet (not beat) targets, including guidance and Street estimates, for the shares to move higher…Net, we think ORCL shares are relatively inexpensive, and hitting numbers will be enough to move the shares higher,” Bachman commented.

Estimates Reduced

The analyst expects Oracle’s software license revenue to decline by ~16 percent CC in FY2017 and by ~14 percent CC in FY2018. Software maintenance growth is estimated at 2-3 percent CC for the next two years.

The revenue and EPS estimates for FY2018 have been reduced from $38.8 billion to $38.7 billion and from $2.77 to $2.75, respectively.