Morgan Stanley Upgrades Oracle, Says Upside Exists In Earnings Growth

By some financial metrics, Oracle Corporation ORCL has frustrated investors, but one Wall Street analyst said a string of disappointments represents an opportunity to buy shares.

The Analyst

Morgan Stanley's Keith Weiss upgraded Oracle's stock rating from Equal-weight to Overweight with a price target boosted from $50 to $57.

The Thesis

Oracle delivered a revenue miss in each of the past three quarters in both the software as a service and platform as a service/infrastructure as a Service businesses, Weiss said in a Wednesday note. (See the analyst's track record here.) 

The confidence of Oracle investors in the company becoming "the next Microsoft" has been drained, Weiss said. But the stock is now trading at a depressed valuation with low expectations, which creates a unique buying opportunity, the analyst said. 

Weiss shared five reasons to be bullish on Oracle's stock in 2018: 

• The database cycle is in "full swing," with many customers ready to adopt the 12c cycle over the next two years.
• SaaS applications are showing signs of "working" and growth expectations have been "reset" to a more achievable bar.
• Oracle's effective tax rate will fall from 17 percent to 15 percent under the corporate tax reform changes.
• Repatriation of foreign cash will leave the company with an after-tax balance of $46 billion in undistributed earnings that can be used for share repurchases, dividends or M&A.
• The stock's next 12-month forward P/E multiple is trading at an unfair 20 percent discount to the S&P 500, despite offering a similar return profile to the index.

Price Action

Shares of Oracle were up 2.53 percent at the time of publication. 

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