Oracle Corporation (ORCL) Shares May Be Dipping, But This Bull Sees Attractive Valuation Following FQ2 Turnout

Raymond James' Michael Turits not only praises Oracle for a second fiscal quarter beat, but likewise looks forward to more growth to come in the next year.


Oracle Corporation (NYSE:ORCL) shares are tumbling almost 5% despite the software giant releasing a second fiscal quarter beat yesterday after the bell. With a big miss on both total cloud as well as platform-as-a-service (PaaS)/infrastructure-as-a-service (IaaS), a sales beat, a license outclass, and a third fiscal quarter outperformance were not enough to satisfy the Street today.

However, Raymond James analyst Michael Turits sees yet another strong quarter from the tech player, whose software license “put up its third straight strong quarter” and drove a 1% beat on back of a one-two punch of cloud meets prem software.

In reaction, the analyst continues to back the giant’s compelling valuation, maintaining an Outperform rating on ORCL stock with a price target of $55, which implies a close to 15% upside from current levels. (To watch Turits’ track record, click here)

For the second fiscal quarter, ORCL yielded total revenue of $9,630 billion, which shot above the Street’s $9,566 million. Earnings were strong in this latest quarter, with EPS of $0.70 topping the Street’s $0.68, thanks to revenue upside, with EBIT margins hitting 43.6% on operating expenses that were lower even withstanding a steeper tax rate. Turits gives kudos to Oracle’s license, which drove the software upside, reaching $7,834 million against consensus of $7,746 million. Oracle’s revenue guide of 2% to 4% CC translates to $9,785 million against the Street’s $9,669, resulting in a third fiscal quarter guidance beat, with EPS of $0.72 aligning with consensus expectations.

Turits concludes: “License was flat y/y (vs. down) for the first time in almost 3 years, benefitting from a) the cloud ‘bring your own license’ (BYOL) opportunity, b) database options purchased ahead of 18C, and c) the industry rebound in on premise investment. By contrast cloud missed with SaaS slowing (as expected), but PaaS/IaaS missing again on delayed deployments and legacy hosting declines with guidance below the street for F3Q. While the net result was still a beat/raise on software overall (cloud + on-prem), the model now looks different than most expected, with SaaS growth solid if not exciting, and database more of a hybrid bring your license to the Oracle IaaS cloud then true DBaaS. With no aggregate changes to our model which still forecasts 7% EPS growth this year and next, and an ongoing (if slower) mix shift to the cloud, we see ORCL as attractively valued in after-hours trading at 15.4x CY18E EPS versus 18.6x for the S&P.”

TipRanks shows a strong bullish analyst consensus backing this tech player, with 12 out of 16 analysts in the last 3 months rating a Buy on Oracle stock and just 4 maintaining a Hold. With a solid return potential of 18%, the stock’s consensus target price stands at $56.67.

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