Oracle Shares Look Inexpensive, Barclays Says After Q1 Earnings Beat

Oracle Corporation ORCL reported Monday after the close with better-than-expected fiscal first-quarter earnings, while revenue fell short of estimates. 

The Analyst

Barclays analyst Raimo Lenschow maintained an Overweight rating on Oracle with a $60 price target.

The Thesis

Oracle shares are likely to be rangebound due to Q1 cloud and support revenues howing decelerating growth and slightly trailing estimates, Lenschow said in a Tuesday note. (See his track record here.) 

Yet the analyst expects some support from an aggressive buyback program announced by the company. The positive impact should last until Oracle delivers on its promised reacceleration in revenue from a positive revenue mix, Lenschow said. 

Cloud services and support revenues rose by a subpar 3 percent year-over-year at constant currency, while cloud and on-premise license revenue was roughly in-line, the analyst said. The decline in hardware revenue was less than expected, he said. 

The analyst attributed the above-consensus Q1 EPS to share buybacks and other below-the-line items.

Looking ahead, Oracle expects 0-2-percent revenue growth and 12-16-percent EPS growth in constant currency, Lenschow said. 

Barclays said it views the 7-percent constant currency application ecosystem revenues; clarification from Oracle that support was not decelerating; and the company's aggressive share buybacks as positives.

A urther deceleration in cloud and license support revenue, which was apparently dragged by forex, and the continued lack of granularity in cloud disclosures and the quality of EPS beats are all concerns, according to Barclays. 

The Price Action

Oracle shares have added about 5 percent year-to-date. The stock was down 0.31 percent at $49.03 at the close Tuesday.

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