It's Time To Revisit The Question Of Whether Oracle Can Hit Double-Digit Earnings Growth

Shares of Oracle Corporation ORCL were trading higher by more than 10 percent Thursday morning in reaction to an encouraging earnings report. But the results weren't good enough for some analysts to turn bullish on the name.

Morgan Stanley's Keith Weiss maintains an Equal-Weight rating on Oracle's stock with an unchanged $47 price target which implies downside from current levels of around $51.50. While Oracle's momentum in the 12c cycle could make a double-digit EPS growth rate easier in fiscal 2018, this doesn't change the analyst's view of a "difficult secular positioning" moving forward.

One of the more concerning aspects of Oracle's business stems from a "sharp" drop off in Cloud Billing growth, Weiss stated. Specifically, the unit's organic growth rate fell from around 60 percent in the third quarter to a mid-teens rate in the fourth quarter.

A more moderate decline in license revenues and a sequential rebound in support revenues did result in the analyst to model a 3.2-percent revenue growth rate in fiscal 2018 to $39.1 billion but at the same time a full-year, double-digit earnings per share growth remains "aggressive."

The analyst is also modeling a gross margin decline of 40 basis points in 2018, an operating margin of 42.9 percent and operating income dollars growth of 4 percent. When taking all of this into considerations, Weiss is modeling Oracle's EPS in fiscal 2018 to rise just 3 percent to $2.82 — up from a prior estimate of $2.75 per share but "well short" of guidance looking for a double-digit rate.

At last check, shares of Oracle were up 9.82 percent at $50.89.

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