The lower price target comes after the firm reviewed the Securities & Exchange Commission's published 10-Q filing and concluded that the company's advancements in cloud computing will continue at the expense of its profit, Barron's reports.
"Our analysis of the possible path of Oracle's transition shows that license declines and SaaS/PaaS growth are largely a function of how rapidly the Cloud transition unfolds, which also acts as the main driver of more/less near-term pressure on margins," Morgan Stanley's Keith Weiss said, according to Barron's.
Weiss noted that an increase in cloud revenue leads to a decline in traditional license software revenue, Barron's said.
Despite the price target cut, shares of Oracle are up by 0.93% to $36.93 in late afternoon trading on Wednesday.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate ORACLE CORP as a Hold with a ratings score of C+. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, deteriorating net income and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ORCL's debt-to-equity ratio of 0.91 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 4.09 is very high and demonstrates very strong liquidity.
- The gross profit margin for ORACLE CORP is currently very high, coming in at 81.73%. Regardless of ORCL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ORCL's net profit margin of 24.44% compares favorably to the industry average.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, ORCL has underperformed the S&P 500 Index, declining 10.28% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to $501.00 million or 52.82% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: ORCL