North America

Earnings Preview: Oracle Q2 2017 (ORCL)

By: Craig Bowles

Overview

Oracle Corporation (ORCL) is slated to report 2Q 2017 earnings after the bell on Thursday, December 15th. 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.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.59 to $0.62 (from their September conference call). The Street estimate is $0.61. (source: Yahoo! Finance) Consensus was $0.65 three months ago.
  • Revenues: Company guidance is $9.00 bln to $9.27 bln. Analysts expect an increase of 2.1% y/y to $9.18 bln (range $9.06 bln to $9.36 bln).
  • New Software Licenses and Cloud Software Subscriptions Revenues: The last four quarters average -14% compared to the prior year, so a similar 2Q y/y decline would be targeting $1.444 bln. Last 2 qtrs declined 11% suggesting $1.489 bln.
  • P/E of 18.8 compares to a 5-year average of 17.0; P/B of 3.4 compares to a 5-year average of 3.7; P/S of 4.5 compares to a 5-year average of 4.6; P/CF of 12.4 compares to a 5-year average of 12.3. Dividend yield of 1.5% compares to a 5-year average of 1.0%.
  • Analysts view Oracle with 26 (24 last qtr) Buy, 13 Hold, and 2 Sell ratings, according to MarketBeat.com.
  • Oracle insiders sold 33,838 shares over the last three months and 6,990,630 shares in the past year (source: NASDAQ.com). After spending $8.5 billion on stock buybacks in the first three quarters of FY2016, an additional $10 billion was added in March 2016.
  • 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 4.97%. Options are pricing in an implied move of 4.32% off earnings.

Recent News

  • 12/05: Pacific Crest Securities remains comfortable with a Sector Weight rating on Oracle. Oracle’s intention to run NetSuite as a separate entity could have a greater drag on margin structure next year, according to a post on Barron’s.com.
  • 11/21: Oracle will buy web service provider Dyn, according to a post on Marketwatch.com.
  • 10/07: Oracle’s $9.3 billion NetSuite (N) deal is being derailed by votes, according to a post on Marketwatch.com.
  • 09/23: Stifel Nicolaus reiterated a Buy rating on Oracle but removed it from their “Focus List” while expressing skepticism of this new push against Amazon, according to a post on Barron’s.com.

Technical Review

The stock has struggled since December 2014’s $46.71 high which appeared to induce insider selling. This area also provided resistance at the dot.com peak. Support came in when the stock moved down closer to $35 and the bull trend since 2009 remains intact. Point and figure technicians have a bullish price objective of $57 with their uptrend line at $37. (Chart courtesy of StockCharts.com)

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Summary

Oracle’s NetSuite deal was viewed as “pricey” by analysts and is lacking in terms of shareholder support. Pacific Crest notes the biggest surprise is the plan for NetSuite to operate as a separate entity. Oracle’s dual CEOs and active Chairman has been a winning combination despite analysts’ doubts and keeping entities separate is straight out of the Berkshire handbook. Insiders, however, haven’t bought a single share in the past year. Over the past four quarters, the company has beaten and missed earnings estimates by an average of 2c. Estimize consensus for Non-GAAP EPS of $0.62 on revenue of $9.172 bln compares to analyst consensus of $0.61 on revenue of $9.18 bln. New license and cloud software subscription revenue will be of interest. Guidance is given during the conference call.

 

 

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