The Oracle logo is displayed on the exterior of the Oracle headquarters
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Oracle shares have rallied 40% this year, amid growing investor confidence in the company’s gradual shift of more of its business to the cloud.
But the rally in some ways has been a little odd — the stock sold off after each of the last two earnings reports amid profit-taking and some general dissatisfaction with the pace of the company’s transition to cloud-based versions of both its application and database software. In both cases, the declines turned out to be major buying opportunities.
On Monday, the enterprise software giant will report results for its fiscal first quarter ended August 31. Oracle (ticker: ORCL) has projected revenue growth for the quarter of 3% to 5%, or 1% to 3% on a constant currency basis, with profits ranging from 94 to 98 cents a share on a non-GAAP basis, and 91 to 95 cents a share under generally accepted accounting principles. Street consensus calls for revenue of $9.78 billion and profits of 97 cents a share.
For the November quarter, Street consensus calls for $10.3 billion in revenue and profits of $1.08 a share.
In the May quarter, revenue was $11.2 billion, up 8%, or 4% in constant currency, and ahead of the company’s guidance range of 5% to 7%.
Cowen analyst J. Derrick Wood on Friday reiterated his Outperform rating on Oracle shares, boosting his target price on the stock to $93, from $88. (The stock closed Thursday at $89.54.) Wood thinks results are likely to be about in line with both guidance and consensus estimates.
He writes in a research note that “industry conversations” point to continued strength in both enterprise resource planning and human capital management software, and further growth for the company’s Oracle Cloud Infrastructure business.
In the May quarter, the company reported 46% revenue growth for Fusion ERP (financial software for large companies), 35% growth for Fusion HCM (HR software for large firms), and 26% growth for NetSuite ERP (financial software for small to midsize businesses). The company said that its cloud infrastructure business, including Oracle Cloud and Autonomous Database software, grew more than 100% in the quarter.
Wood doesn’t expect the seasonally softer August quarter to be a catalyst for the stock, but he remains bullish on the outlook for fiscal 2022, and says the stock can “continue to grind higher” if revenue growth accelerates throughout FY ‘22.
Citi analyst Tyler Radke is more cautious, maintaining his Neutral rating and $80 target price. He notes that Oracle heads into the earnings report with “some of the stronger organic growth prospects” in more than a decade. But he says the set-up for the quarter looks neutral, with consensus estimates “reasonable” despite incremental foreign exchange headwinds. But Radke adds that he has “questions on the sustainability of the elevated growth trends.”
Radke contends that with the stock at all time highs, further gains could prove challenging, with margin pressure likely to weigh on profit and free cash flow growth in coming quarters. “With valuation at peak levels we maintain our neutral rating,” he adds.
Oracle shares on Friday were up 0.9%, to $90.31, just a smidge below the stock’s recent all-time high at $91.78. The stock was up 0.3% in premarket trading Monday.
Write to Eric J. Savitz at eric.savitz@barrons.com