Oracle's Earnings on Tap for Wednesday: What Wall Street's Saying

NEW YORK (TheStreet) - Wall Street isn't expecting any big earnings surprises when software services giant Oracle (ORCL) reports earnings Wednesday after the markets close.

Consensus estimates call for Oracle to post earnings of 68 cents a share on revenue of $9.51 billion for its fiscal second quarter, according to Thomson Reuters. Oracle had forecast quarterly earnings in the range of 66 cents to 70 cents a share, according to analysts.

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Oracle's longtime CEO Larry Ellison passed the reins in September to former HP (HPQ) CEO Mark Hurd and Safra Catz -- announced in conjunction with last quarter's results. Ellison remains the company's executive chairman and CTO.

Oracle shares were trading down 0.36% on Tuesday to $40.96. The stock is up 7.5% this year. Here's what analysts said about Oracle's second quarter"

Jack Andrews, D.A. Davidson (Buy, $47 PT)

Investor attention to remain focused on Cloud revenue segments. The company has recently been emphasizing its strength in the Cloud, and began dividing its Cloud Subscriptions segment into Cloud SaaS (software as a service) & PaaS (platform as a service) and Cloud IaaS (infrastructure as a service) in FY4Q14. For FY2Q15, we model Cloud SaaS & PaaS revenue to grow 43.0% YoY to $370 million and Cloud IaaS to grow 43.0% to $139 million. We believe share price volatility may increase as investors become hyper focused on the directional trends of these individual line items, even though we model the combined Cloud offerings comprising only 5.3% of total FY2Q15 revenue.

We are forecasting non-GAAP EPS of $0.68, previously $0.69, which compares with $0.69 in FY2Q14 and is in line with the Street mean of $0.68. Company guidance is $0.66-$0.70. For FY2015, we forecast $3.05 in non-GAAP EPS while the Street consensus is at $3.04. We note that ORCL's financial results have either missed or come in at the low end of management's guidance range in 6 of the last 8 quarters.

Our thesis remains sentiment in ORCL will gradually improve. In the near term, we believe the potential for continued choppy execution around the transition to the cloud and negative currency impacts are more widely understood. From a longer term perspective, we believe the probability of the extreme bear case on ORCL being realized (i.e. a secular decliner) should decline as a result of the numerous cloud product introductions at OpenWorld. The potential magnitude of the extreme bull case on ORCL (i.e. capturing a greater share of enterprise IT spending) is less clear at this juncture; however, we note that ORCL's valuation discount on a P/E basis to the S&P 500 is nearing historic highs.

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Keith Weiss, Morgan Stanley (Overweight, $50 PT)

Upgrading on the Survey Results (Not the Quarter). ... [A] perception of better positioning for the move to Cloud Computing was the most likely catalyst to bringing Oracle's multiple more in-line with its historical discounts relative to the S&P 500 and [Microsoft MSFT]. The latest results from our Oracle customer survey series suggests improving traction with Fusion Cloud Applications, traction which should result in accelerating organic cloud revenue growth in CY15/16 (9%/10% vs 7% in CY14) and assuage investor fears of Oracle seeing large competitive losses to native Cloud vendors like [ CRM] and [Workday WDAY]. Within our survey, 18% of respondents were already using Fusion apps today vs 12% a year ago, with product maturity cited as becoming less of an issue. Fusion HCM expected usage and evaluation is up to 42% from 31% in the prior survey and apps are perceived as much easier to use than two years ago. To be clear this is not a call on Q2 results; we do not claim to have any real visibility into quarterly results for Oracle. Rather, we see the combination of improving results in a secularly important portion of the business against very low expectations and weak sentiment in the stock - giving potential for the multiple to move higher against what should be a durable high single-digit or low double-digit EPS growth story.

Brian White, Cantor Fitzgerald (Buy, $48 PT)

Given the incrementally more challenging 3Q:14 reports and outlooks from the leading IT vendors this earnings season, we are going into Oracle's 2Q:FY15 report with tempered expectations this week. At the same time, Oracle has delivered choppy results over the past several quarters as IT spending has been muted and the company continues to transition its portfolio into the cloud. That said, we are encouraged by Oracle's progress in the cloud as highlighted at Oracle OpenWorld in early October and we believe Oracle is one of the best positioned mega-cap companies to successfully make this transition over the next couple of years.

We believe Oracle will slightly miss our 2Q:FY15 revenue estimate of $9.54 billion (FactSet consensus is at $9.51 billion) and approach our EPS projection of $0.68 (the Street is also at $0.68). Our revenue forecast reflects 11% QoQ growth and is in-line with the five-year average increase.

Expecting a Cautious 3Q:FY15 Outlook. Looking into 3Q:FY15, we are projecting revenue of $9.71 billion (Consensus is at $9.69 billion) and EPS of $0.71 (Consensus is at $0.73). Given the soft outlooks across the leading IT vendors this earnings season, we believe our estimates and the Street may prove a bit aggressive.

Raimo Lenschow, Barclays (Overweight, $48 PT)

Our and consensus estimates are similar for Q2 on the top line, though we currently forecast profitability slightly below consensus. With this preview we are also publishing results from our Off-Cycle VAR survey, which helps investors get a sense of the deal activity in the channel and some expectations heading into the tape. The results were generally positive. We also took note of the impact of greater than expected changes in FX assumptions. We are reiterating our $48 target and OW rating.

We note that the impact of stronger FX headwinds could be noteworthy and we expect management to continue to provide color on this factor. In this report, we have quantified the expected additional impact to each segment of Oracle's business based on the larger than expected decline in the value of the Euro during fiscal Q2. The impact of FX led us to adjust our estimates slightly downward.

Our VAR survey indicates a positive bias as resellers have observed more favorable conditions and customer interest in the market. We surveyed 15 Oracle resellers with combined annual Oracle-related software revenue of approximately $773mn. The general takeaway was that the deal environment seems to be firming up nicely and resellers have seen improving conditions for their Oracle business. Additionally, we got color on the competitive environment and customer interest in 12c related to the new in-memory option. Notably, on a sequential basis, we saw improvements as more resellers described the availability of that option as impactful, and finally, resellers seemed to indicate that expectations for Q3 are also trending in the right direction.

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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 solid stock price performance, revenue growth, reasonable valuation levels, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • ORCL's revenue growth trails the industry average of 27.3%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for ORACLE CORP is currently very high, coming in at 82.31%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.40% is above that of the industry average.
  • ORACLE CORP's earnings per share improvement from the most recent quarter was slightly positive. 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 $2.39 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($3.04 versus $2.39).


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- Written by Laurie Kulikowski in New York.

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