For the Patient Investor There Is Opportunity in Oracle (ORCL) Stock, but Short Term Outlook Remains a Concern, Says Analyst


Last night, Oracle (ORCL) reported mixed fiscal first-quarter results and served up a muted 2Q:FY19 outlook but stuck to its FY:19 guidance.

Specifically, the software giant reported 1Q:FY19 revenue of $9.20 billion that missed Street estimates of $9.28 billion, but non-GAAP EPS of $0.71 beat Street projections of $0.69. Looking into 2Q:FY19, Oracle’s guidance calls for sales to grow by 0-2% YoY, which is below Street estimates of +2%, and non-GAAP EPS of $0.77-0.79, which the midpoint is below Street expectations of $0.79. For FY:19, Oracle reiterated expectations for revenue growth to accelerate relative to FY:18 and plans for double-digit non-GAAP EPS growth.

Rosenblatt analyst Marshall Senk commented, “We believe the key to this story over the longer term is migration of the base, as we continue to see strong cloud ERP and HCM numbers not really helping the top line. The good news here for the patient investor is the overall applications ecosystem continues to grow, up 12%, and the tech ecosystem was up 4% – both growing a nearly 2x the consensus market forecast. We believe this is a strong sign that customers are staying with Oracle for their core enterprise applications, although the timing of when these apps may move toward the cloud remains uncertain. We continue to believe that the bulk of today’s cloud applications are new systems focused on digital transformation rather than migration of back-office systems to the cloud. Over time we believe that will change, we just aren’t seeing signs of much movement at this point.”

As such, Senk reiterates a Neutral rating on Oracle shares, with a price target of $51, which represents a slight upside potential from current levels. (To watch Senk’s track record, click here)

TipRanks suggests caution has a slight grip on Wall Street analysts surveying the software maker. Out of 25 analysts polled in the last 3 months, the battle between the bulls and the sidelined appears evenly split- with 12 bulls betting on ORCL stock, while 13 analysts hedging their bet. The 12-month average price target stands at $54.65, marking nearly 12% upside potential from where the stock is currently trading. (See ORCL’s price targets and analyst ratings on TipRanks)

 

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