Oracle Analysts On The Sidelines After Q1 Beat: BofA Awaits Sustained Revenue Acceleration

Oracle Corporation ORCL reported better-than-expected first-quarter results and guided above consensus estimates for the second quarter. Here's what the Street has to say. 

The Oracle Analysts: Stifel analyst Brad Reback maintained a Hold rating on Oracle and increased the price target from $48 to $56.

BofA Securities analyst Kash Rangan reiterated a Neutral rating and hiked the price target from $60 to $65.

Morgan Stanley analyst Keith Weiss maintained an Equal-weight rating and upped the price target from $58 to $62.

Oracle's Cash Flow A Concern, Stifel Says: Oracle's August quarter results were stable, with license revenues exceeding expectations and EPS beating the consensus due to disciplined spending, Stifle analyst Reback said in a note.

However, cash flow from operations and free cash flow growth continued to lag, with both declining year-over-year, the analyst said. 

Oracle highlighted the growth of the company's modern Fusion applications and growing customer usage of its public cloud solution, he said. 

Even as Oracle's application suite is likely to continue gain share, the prospects for operating cash flow are bleak given the nearly insurmountable lead AWS/Azure have in the hyperscale cloud market, Reback said.

"That said, given Oracle's declining software-sector relevancy, we view this quarter's solid results as another positive data point that spending levels continue to rebound post the April lows." 

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BofA Says Revenue Acceleration Timeline Unclear: Oracle's total revenue growth reaccelerated to 2% in constant currency versus a 4% decline in the fourth quarter, with upside likely driven by COVID-19-related deal delays and easier comps with respect to licenses sales, said BofA's Rangan. 

The most important metric — cloud services/license support — grew 2% year-over-year in constant currency, below the 3-5% range seen in recent quarters, the analyst said. 

The second-quarter revenue guidance for flat to 2% constant currency growth incorporated the macro impact, he said.

Despite the revenue mix shifting favorably, the timing of a sustained revenue acceleration remains unclear for Oracle, Rangan said.

BofA raised its fiscal year 2021 revenue and EPS estimates from $39.2 billion and $4.11, respectively to $39.9 billion and $4.25.

Morgan Stanley Says Durability Of Growth In Question: Oracle's first-quarter results bounced back nicely from the fourth quarter, thanks to 9% license growth and strong cloud momentum, Morgan Stanley's Weiss said in a note. 

After multiple false starts, investors likely remain wary on the durability of growth, but a P/E multiple of less than 13 times skews the risk-reward favorably, the analyst said. 

ORCL Price Action: Oracle shares gained 0.32% Friday, ending the session at $57.   

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