Oracle Stock Slumps. Wall Street is Waiting for Accelerating Growth. | ORCL Message Board Posts



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Msg  128 of 137  at  9/14/2021 4:59:09 PM  by

jerrykrause


Oracle Stock Slumps. Wall Street is Waiting for Accelerating Growth.

Oracle Stock Slumps. Wall Street is Waiting for Accelerating Growth.
 
 

Oracle's slowly evolving growth story continues to be a source of frustration for investors.

For the last few quarters, the enterprise-software giant has been showing promising growth in its cloud-based application and database business. With an annualized run rate of $10 billion, it now accounts for about a quarter of total revenues. That has buoyed the stock, which was up 39% for the year through Monday, but overall growth remains modest, leaving the Street thirsting for more.

After the close on Monday, the company reported financial results for its fiscal first quarter, ended Aug. 31, that generally met or beat expectations. Oracle (ticker: ORCL) posted revenue of $9.73 billion , up 4% from the year-earlier quarter, or 2% adjusted for currency. That was in line with the company's guidance , which had called for growth of 3% to 5%, or 1% to 3% in constant currency.

Non-GAAP profits were $1.03 a share, ahead of the 94 to 98 cents a share management had told investors to expect. Under generally accepted accounting principles, the company earned 86 cents a share, a little below the guidance range of 91 to 95 cents a share.

Oracle now is forecasting revenue growth of between 3% and 5% for the November quarter, with non-GAAP profits of between $1.09 and $1.13 a share, a little above the previous Street consensus forecast of $1.08 a share. The company sees a full-year growth rate in the mid-single digits. CEO Safra Catz told analysts that the company's cloud service and license support business, which is about three-quarters of the total, should grow at better than 5% in the November quarter, with even better growth to follow.

There were certainly pockets of strength. Revenue from Fusion ERP, the cloud-based version of Oracle's enterprise resourcing planning software for large companies, was up 32%, while the increase for NetSuite ERP, similar software for smaller companies, was 28%. Revenue from the Oracle Cloud Infrastructure business was up 80%.

But many analysts found the results a little disappointing. Oracle shares were down 3.6% to $85.65 on Tuesday morning.

Morgan Stanley analyst Keith Weiss, who kept an Equal Weight rating on the stock and a target of $77 for the price, pointed out that bookings growth in the quarter decelerated to 1%, from more than 10% in the fiscal fourth quarter. That, he said, "likely saps some investor enthusiasm around a durable revenue acceleration story at Oracle." Free cash flow was down about 22% year over year as the company continues to invest in the build out of its cloud businesses, he said.

But Weiss also noted that Oracle continues to aggressively buy back stock: The total was $8 billion in the latest quarter. With $39 billion in cash on the balance sheet, the pace of buybacks isn't likely to slow, which limits downside in the shares, he said.

Evercore ISI analyst Kirk Materne kept his In Line rating on Oracle shares, while raising his target price to $90, from $75. He is encouraged by the company's growth outlook and 10% increase in remaining performance obligations, a measure of projects signed but not completed. But he said the stock could be rangebound until Oracle shows reacceleration in top-line growth.

BofA Global Research analyst Brad Sills noted that 65% of revenue still comes from legacy on-premise database and application software. That piece of the business isn't really growing, diluting the growth from the cloud businesses, he said. He kept his Neutral rating and $95 target price on Oracle shares.

Monness Crespi Hardt's Brian White was more upbeat, repeating his Buy rating and lifting his target price to $115, from $113. While conceding that the company delivered a mixed quarter, he said the outlook was "solid …with upbeat vibes."

"We believe Oracle offers investors a high-quality, value play with the opportunity to capitalize on the company's cloud transformation, and [an] increasingly attractive model," White wrote.

Cowen's J. Derrick Wood likewise remained bullish, reiterating an Outperform rating and increasing his target price to $96, from $93. "We think the quarter and guidance were solid, particularly for a Q1," when the figures are generally soft. He said management continues to show confidence about the outlook for growth, saying an increase in capital spending is "a vote of confidence in demand trends."

 


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