Buy The Dip In Oracle? The Street Debates

Shares of Oracle Corporation ORCL moved lower Wednesday after the company's fiscal fourth-quarter earnings report came in better than expected, but management's guidance came in below expectations.

The Analysts

• UBS' Jennifer Swanson Lowe maintains a Neutral rating on Oracle with a price target lowered from $53 to $48.
• Morgan Stanley's Keith Weiss maintains at Overweight, unchanged $57 price target.
• Sitfel's Brad Reback maintains at Hold, price target lowered from $53 to $50.
• Credit Suisse's Brad Zelnick maintains at Outperform, unchanged $60 price target.
• William Blair's Jason Ader maintains at Market Perform.

Oracle's stock was trading round $43.02 at time of publication, down 7 percent on the day.

UBS: 'Little Wiggle Room'

Oracle's guidance of accelerating revenue growth in fiscal 2019 implies it will see license and hardware declines that are consistent with 2018's levels and a low 20 percent growth in the cloud business, Swanson Lowe said in a note.

While the company can likely achieve its guidance, it has "little wiggle room for any missteps," Swanson Lowe said. A double-digit earnings growth is based on expectations for gross margin leverage and ongoing operating expenditure efficency gains. For the stock to break above the $45 to $55 range, the company needs to show "stable" top-line growth.

Morgan Stanley: What To Like And Monitor

Oracle reported a "good finish" to the fiscal year with multiple encouraging read-outs, Weiss said in a note. These include achieving a goal of ending fiscal 2018 with a double-digit EPS growth and an "encouraging" objective of accelerating revenue growth in fiscal 2019 on a constant currency basis.

On the other hand, the analyst says investors should look out for foreign exchange issues expected to have a $300 million negative impact on revenue and 2 percent headwind to EPS in the fiscal first quarter and reduced visibility into management's 80 percent gross margin cloud target.

Balancing the positives with the negatives, a bullish stance on Oracle can still be made amid expectations for a double-digit EPS growth and "healthy" free cash flow generation, the analyst said.

Related Link: Selling Pressure Seems Ready To Ebb A Bit, But Trade Fears Haven't Vanished

Stifel: Losing Share In 'Interesting Areas'

Oracle's management made a decision to change the reporting structure without providing a full reconciliation, Reback said in a note. This can "obfuscate underlining business trends," especially when considering an "uneven" performance in the cloud business over the past few quarters.

It's also questionable why Oracle isn't investing more in growth given the "momentum management says it's seeing," the analyst said. In fact, the company appears to be "rapidly" losing share in the "most interesting areas" of the business of PaaS/IaaS of infrastructure software.

Credit Suisse: Turning Cloudy But Still Sunny

Despite less favorable foreign exchange trends, Oracle's earnings report was "largely above expectations" and management's guidance was in-line with consensus estimates when adjusting for currency exchange, Zelnick said in a note. There are some aspects of the business that are "turning cloud," such as deferred revenue miss, loss of visibility in SaaS outlook, but the company remains well positioned in database and cloud with an "underappreciated durability."

William Blair: 'Extreme' Cloud Move

Oracle's decision to change its reporting structure seems like an "extreme move" and could be seen as an "attempt to pull the proverbial wool over investors' eyes," Ader said in a note. This move is likely the biggest contributing factor to the stock's weakness given the importance of cloud services growth which now has less visibility.

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