Why Orcale (ORCL) Is Up Today

NEW YORK (TheStreet) -- Shares of Oracle (ORCL) are up 6.5% to $36.85 Thursday following a better-than-expected quarterly earnings report.

Oracle's revenue is up just 2% year-over-year, and net income is down 1%, but the results still beat analysts estimates. Nomura analyst Rick Sherlund said the drop in sales is "favorable after a few disappointing quarters in February and May." The sales drops are actually in line with the company's guidance.

Sales of Oracle cloud services rose 35% in the quarter, and revenue from the services rose 20%. In a call to analysts Oracle president Safra Catz said the company "decided that we were going to really lean in to the cloud to get market share."

The company also claimed that sales of its servers increased in the quarter, though it wouldn't give any exact numbers. Orcale's hardware division has struggled in the past as other companies switch t the cloud.

Shares of other IT hardware companies HP (HPQ), EMC (EMC), NetApp (NTAP), and Nimble Storage (NMBL) are all up on news of the positive hardware sales.

As it tries to push into more cloud services Oracle has to compete with companies such as Amazon (AMZN), Microsoft (MSFT), and Salesforce (CRM). This quarter seems to indicate that it can compete with those companies despite being a legacy competitor in the technology space.

TheStreet Ratings team rates ORACLE CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ORACLE CORP (ORCL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, notable return on equity, attractive valuation levels and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ORACLE CORP has improved earnings per share by 14.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ORACLE CORP increased its bottom line by earning $2.26 versus $1.97 in the prior year. This year, the market expects an improvement in earnings ($2.90 versus $2.26).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.2%. Since the same quarter one year prior, revenues slightly increased by 2.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Software industry and the overall market, ORACLE CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The gross profit margin for ORACLE CORP is currently very high, coming in at 82.29%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 26.17% is above that of the industry average.
  • You can view the full analysis from the report here: ORCL Ratings Report

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