Oracle buyback-driven earnings beat, cloud growth leaves analysts mixed
Oracle Corp. shares have given back most of their early gains in midday trading Tuesday, as analysts look to make sense of a mixed quarter and a “murky” outlook.
Oracle ORCL, +0.93% shares, which had traded up as much as 6% earlier in the session, were last up 1.3% at $46.29, and mostly in-line with the broader market as the Dow Jones Industrial Average DJIA, +0.91% rose 1.3%, the S&P 500 index SPX, +0.54% gained 0.9%, and the tech-heavy Nasdaq Composite Index COMP, +0.91% gained 1.3%.
The company topped Wall Street’s earnings expectations on Monday afternoon, but Oracle also revealed that it repurchased about $10 billion in stock during its fiscal second quarter, the second-straight quarter of $10 billion or more in buybacks.
“Oracle continues repurchasing its shares at an eye-opening pace, buying back 203 million shares for about $10 billion, driving about 4 cents of EPS upside in the quarter,” wrote J.P. Morgan analyst Mark Murphy, who has a neutral rating and $53 price target on the stock. “This buyback has put Oracle in a net debt position for the first time in a decade, and we think the aggressive pace could continue near-term.”
Read: Oracle bought an earnings beat with share repurchases
The actual results drew mixed emotions from analysts. “Underlying metrics appear healthy, but their standing among Oracle’s broader financials is difficult to discern,” wrote Needham’s Jack Andrews, who has a hold rating on the shares. “We remain cautiously optimistic on the key database business, but an apparent directional deceleration bears watching.”
Andrews called the timing of a possible inflection point “murky” for Oracle.
Cowen analyst J. Derrick Wood, who has an outperform rating and a $56 price target, said that Oracle was executing well in its core growth focus area in Software-as-a-Service, namely, in cloud enterprise resource planning and human capital management products, and that adoption of its autonomous database was going as expected.
“ORCL remains positioned for 2H growth acceleration, driven by core drivers and some fading in legacy overhangs,” Wood said.
But Evercore ISI analyst Kirk Materne, who has an in-line rating and $53 target price on the stock, said bookings need to translate into consistent double-digit growth.
“Overall, we continue to believe that Oracle has a strong position in the cloud ERP market and the apps revenue growth (+7% in c/c) in F2Q was solid, but until the inflection in SaaS ERP bookings starts to translate into consistent +10% application growth, we believe it will be difficult for revenue growth to meaningfully accelerate or for the multiple to ‘re-rate,’” he wrote.
Instinet’s Christopher Eberle was more upbeat, writing that the company’s latest numbers didn’t just constitute a “buyback-driven EPS beat.” He has a buy rating and a $53 target on shares.
“Importantly, we saw stabilization in top-line growth for Cloud Services and License Support revenue despite growing FX headwinds (and re-acceleration in constant currency), a positive sign in our view, especially when coupled with the bullish SaaS bookings detail Oracle released on the call,” Eberle wrote. “Further, we view this increased level of bookings detail positively, and hope to see more going forward, especially in light of investor concern over the new reporting structure.”
Jefferies analyst John DiFucci, who has a buy rating and a $61 price target, said Oracle’s modest beat was “a step in the right direction.”
“We believe Oracle is well positioned as enterprises move financial applications to the cloud, though WorkdayWDAY, +1.32% will get its share,” DiFucci said.
On the whole, Oracle’s earnings did little to change analyst sentiment. None of the 37 analysts who cover Oracle changed their ratings following the report: 17 have buy or overweight ratings, 19 have hold ratings and one has a sell rating. Two analysts raised their price targets while three lowered their targets, resulting in an average target of $52.97 compared with the $52.83 before earnings, according to FactSet.
Shares of Oracle are down 2.4% for the year, compared with a 3.3% fall in the Dow industrials, a 3.9% drop in the S&P 500 index, and a 0.8% decline in the Nasdaq.
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