Oracle's Fourth-Quarter Earnings Preview: All Eyes In the Cloud

NEW YORK (TheStreet) -- Oracle Corporation (ORCL), the world’s second-largest software company, will report fourth-quarter and full-year fiscal 2015 earnings results Wednesday after the closing bell. And investors looking for a solid long-term value play should consider taking a position in ORCL stock ahead of the report, especially given the strong rate at which Oracle's cloud transition continues to accelerate.

With better-than-expected results already released from cloud giant Salesforce.com (CRM), which Oracle was rumored to be interested in as a buyout candidate, investors are eager to see if Oracle can respond, especially after Oracle boasted it can capitalize if someone else were to acquire Salesforce.com.

For the quarter that ended May, the average analyst estimate calls for 87 cents in earnings per share on revenue of $10.96 billion, marking year-over-year declines of 5% and 3%, respectively. For the full year, earnings are projected to be flat at $2.87 per share, while revenue of $38.5 billion is expected to be up less than 1%.

Known for its breakthroughs in databases and software that analyzes business intelligence, Oracle, headquartered in Redwood City, Calif., has made the cloud its top priority, assuring shareholders it would become a central player in cloud-based services. And the company continues to make good on that promise.

As evidenced by the 30% increase in third-quarter cloud applications and application platform revenue, Oracle is no longer being left behind by presumed nimbler rivals Workday (WDAY) and Salesforce.com. Better still, when combining the 28% year-over-year jump in third-quarter cloud infrastructure revenue, Oracle now has the offsetting factors in place to lessen its dependency on legacy hardware, while also migrating from how its sells software.

Selling software licenses through monthly subscriptions is no longer a business Oracle wants to be in. Not to mention, the margins in that business model are too low to justify the investments in trying to grow it. And Oracle's customers -- through their spending habits on Oracle's new cloud platforms -- have shown they want and prefer a better way.

What's more, with Oracle's cloud-based software, platform and infrastructure products appealing to more of its customers, Oracle is also creating separation between itself and the likes of SAP (SAP) and IBM (IBM). From my vantage point, Oracle looks well-positioned to lead a cloud market that has yet to fully mature. And for ORCL stock? It means more profits for the company, thus a higher stock price in the quarters and years ahead.

In that vein, at around $44 per share, ORCL stock is relatively cheap, trading at just 18 times earnings, against a P/E of 21 for the S&P 500. And this would explain why ORCL stock has a consensus "Buy" rating and an average analyst 12-month price target of $48, suggesting 11% gains from current levels of around $43.

To the extent Oracle can meet or exceed its cloud targets Wednesday and issue an upbeat outlook for fiscal-year 2016, ORCL stock can begin its march toward its consensus target of $48. But to profit from the announcement, investors would be better served placing their bets now.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

More from Opinion

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

It's Dumb to Think There Aren't Already Monopolies in Big Tech

It's Dumb to Think There Aren't Already Monopolies in Big Tech

Google's EU Battles Are Hardly a Reason to Panic

Google's EU Battles Are Hardly a Reason to Panic