North America

Earnings Preview: Oracle Q1 2018 (ORCL)

By: Craig Bowles

Overview

Oracle Corporation (ORCL) is slated to report 1Q 2018 earnings after the bell on Thursday, September 14th. The earnings release is expected at approximately 4:00 p.m. ET with a 5:00 p.m. conference call and live webcast available at Oracle Investor Relations. Given its size and influence, the reaction to Oracle’s earnings can have a meaningful impact on other markets, including the S&P E-Mini Index Futures & NASDAQ E-Mini Futures.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.59 to $0.61 (from their June conference call). The Street estimate is $0.60. (source: Yahoo! Finance) Consensus was $0.59 three months ago.
  • Revenues: Company guidance is 4-6% y/y growth or $8.96 bln to $9.13 bln. Analysts expect an increase of 4.8% y/y to $9.03 bln (range $8.97 bln to $9.18 bln).
  • New Software Licenses and Cloud Software Subscriptions Revenues: The last four quarters average -13% compared to the prior year, so a similar 1Q y/y decline would be targeting $898.5 mln.
  • P/E of 23.0 compares to a 5-year average of 16.9; P/B of 3.9 compares to a 5-year average of 3.6; P/S of 5.7 compares to a 5-year average of 4.5; P/CF of 15.2 compares to a 5-year average of 12.5. Dividend yield of 1.3% compares to a 5-year average of 1.3%.
  • Analysts view Oracle with 29 (24 last qtr) Buy, 10 Hold, and 0 Sell ratings, according to MarketBeat.com.
  • Oracle insiders sold 2,294,459 shares over the last three months and 9,227,261 shares in the past year (source: NASDAQ.com). After spending $10.5 billion on stock buybacks in FY2016, FY2017 fell to $3.8 billion.
  • Oracle results could impact software developers such as Microsoft (MSFT), CA Technologies (CA), and International Business Machines (IBM).
  • Oracle shares have a 1-day average price change on earnings of 5.12%. Options are pricing in an implied move of 1.96% off earnings.

Recent News

  • 08/05: Oracle is quietly becoming the most intriguing company in advertising. Earlier this year, Oracle spent more than $850 million to acquire Moat, according to a post on BusinessInsider.com.
  • 07/26: Mitsubishi UFJ maintained an Overweight rating on Oracle citing expectations for continued growth of revenue and expansion of non-GAAP operating margin as it progresses through its transition. Also expect strong cloud performance an expanding cloud margins with potential for operation stability continuing to improve, according to a post on StreetInsider.com.
  • 07/05: KeyBanc Capital Markets upgraded Oracle to Overweight from Sector Weight citing a big conversion of the existing users to cloud that could boost results. “By the fourth quarter of fiscal 2019, ending June of that year, revenue from cloud may be on a $12 billion “run rate,”, according to a post on Barron’s.com.

Technical Review

The stock is showing some relative strength as it retests 2017 all-time highs having finally pushed through mid-$40s resistance (similar to the dot.com peak). The current balance area is $49 following previous support at $39. (Chart courtesy of StockCharts.com)

Summary

Oracle may have a superior product but analysts worry about pricing and long-term revenue growth. Oracle’s cloud revenue is promising. The company has become a leader in analytics for internet marketing. Analyst bullishness increased the past three months. Insider selling eased but is still a worry. Over the past four quarters, the company has beaten and missed earnings estimates by an average of 6c. Estimize consensus for Non-GAAP EPS of $0.64 on revenue of $9.078 bln compares to analyst consensus of $0.60 on revenue of $9.03 bln. New license and cloud software subscription revenue will be of interest after Q4’s improvement. Guidance is given during the conference call.

 

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