Oracle Corporation (ORCL): Here’s Why You Should Stick with the Bulls

Rosenblatt's Marshall Senk anticipates the cloud model transition will prove to be a "multi year cycle" for this software giant.

Oracle Corporation (NYSE:ORCL) shares are taking a 9% beating in the market today after dishing out third fiscal quarter earnings that were close, but not quite to strong enough to satisfy investors.

Though the software giant’s licensing segment pulled off a sound quarterly show, for a company that has been transitioning to the cloud, investors were left confused with results that underperformed expectations. Additionally, the fourth quarter guide less than impressed Street-wide forecasts, leaving investors reeling and running.

Rosenblatt analyst Marshall Senk argues that investors seem most keyed into cloud revenues and the guide, both of which he anticipates have experienced an impact from challenges with the cloud model transition challenges within Infrastructure as a Service (IaS) and Platform as a Service (PaS) businesses.

Yet, on a positive note, the BYOL program was “much anticipated” and delivered a robust reception, enabling customers to bring current licenses in place to the cloud on their own time as well as at the speed of deployment of new SaaS applications. In other words, the analyst praises fired up adoption of the program among big customers, noting strengths of “flexibility” in utilizing these licenses “wherever they want without financial penalty.”

After all, every transition is a “process” and processes take time- this one could “be a multi year cycle for Oracle,” notes the analyst.

“Oracle showed a solid Q3 with strength in the license business driven we believe by the strong acceptance of the BYOL program announced last year at OOW. We believe customers have been asking for this program for some time. Cloud growth showed some weakness driven by the headwinds in PaaS/IaaS from the legacy hosting business, and slower than expected growth again in SaaS revenues. The company continues to see strength in the applications business which has grown 12% YTD with the SaaS apps leading the charge led by ERP up 62% (now at $1.5 billion ARR) and HCM up 71%. While cloud revenues (and guide) were pressured, management reiterated its confidence in the breadth and depth of the pipeline which jibes with our research, pointing to both the availability of the new autonomous database and ongoing strength in cloud ERP,” asserts Senk.

Therefore, in face of a transition dragging cloud gains, the analyst stays the bullish course all the same, reiterating a Buy rating on ORCL stock with a $58 price target. These 12-month target expectations suggest a close to 23% upside from current levels. (To watch Senk’s track record, click here)

TipRanks highlights an analyst consensus leaning towards the bulls when it comes to ORCL’s prospects in the market. Out of 14 analysts polled in the last 3 months, 8 are bullish on ORCL stock while 6 remain sidelined. With a return potential of nearly 21%, the stock’s consensus target price stands at $56.92.

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