Wall Street Cautious On Oracle: 'Investors Likely Have To See The Growth Before Believing It'

Oracle Corporation ORCL shares were trading lower Wednesday after the company reported a larger-than-expected revenue decline in the fiscal fourth quarter but issued current-quarter guidance that exceeded expectations.

Oracle reported fourth-quarter adjusted earnings per share of $1.20, exceeding consensus analyst estimates of $1.15. The revenue figure of $10.44 billion was down 6% from a year ago and below consensus analyst estimates of $10.65 billion.

Several analysts have weighed in on Oracle shares since the Tuesday afternoon report. 

The stock was down 4.73% at $52.01 at the time of publication Wednesday. 

Seeing Is Believing 

Morgan Stanley analyst Keith Weiss said management’s confidence in accelerating revenue growth moving forward was surprising.

“Valuation at 12X CY21e EPS remains undemanding, but investors likely have to see the growth before believing it,” the analyst said. 

Wells Fargo analyst Philip Winslow said better-than-expected profitability and an expanding operating margin are evidence that Oracle is managing its expenses.

“As the headwinds from the transition to the cloud abate relative to the increase in recurring subscription revenue and as customers increasingly lift-and-shift database workloads to Oracle Cloud, we believe that Oracle can accelerate revenue and operating income growth,” he said. 

RBC Capital analyst Alex Zukin said the time frame for accelerating revenue growth is uncertain at this point.

“Management indicated that deals dropped off as the quarter progressed. However, it is also indicated that deals were not lost to competition, and it believes most will be booked,” the analyst said. 

Oracle's Vulnerability Exposed

Oppenheimer analyst Brian Schwartz said the weaker demand environment exposed vulnerability in Oracle’s recurring revenue model.

“F4Q results could infer that, while ORCL has a market discount valuation, the company may not be in a strong position to capitalize on what should be an attractive opportunity to pitch consolidation sales during a downturn and drive a better narrative on the name,” Schwartz wrote.

Needham analyst Jack Andrews said deal slippage is concerning, but Oracle also has clear emerging positives.

“ORCL has now signed some marquee OCI customers, and continues to take share in cloud ERP applications.” 

Secular Challenges For Oracle 

Wedbush analyst Steve Koenig said Oracle has clear secular challenges ahead.

“As application development shifts to the cloud, we see a growing challenge from Amazon (AMZN – Pachter) as it incorporates database and other IaaS/PaaS functionality into its low-cost platform,” Koenig wrote.

Stifel analyst Brad Reback said he is skeptical that new focus areas can accelerate Oracle’s revenue growth, and its $28 billion in debt limits its potential for meaningful acquisitions.

“Overall, while Oracle's recurring revenue base is fairly secure, given Oracle's weaker position in IaaS, and our view of the company losing share in the database market, we prefer Microsoft in mega-cap software,” Reback wrote.

Oracle Ratings, Price Targets

• Morgan Stanley has an Equal-Weight rating with a price target lifted from $53 to $58. 
• Wells Fargo has an Overweight rating and $62.50 target.
• RBC has a Sector Perform rating with a price target lifted from $50 to $51. 
• Oppenheimer has a Perform rating. 
• Wedbush has a Neutral rating and price target lifted from $52 to $54. 
• Stifel has a Hold rating with a target lifted from $44 to $48. 
• Needham has a Hold rating. 

Related Links:

Oracle Reports Mixed Q4 Earnings

Oracle Reports Q3 Earnings Beat