Oracle Corporation, an American multinational computer technology company, reported a 2% increase in total revenues in the second quarter, largely driven by demand for cloud services and license support, which accounted for 74% of the company’s total revenue, amid COIVD-19 pandemic, sending its shares up about 5% in pre-market trading on Friday.
The database giant said its revenue from its largest unit, that includes its cloud services, rose 2.1% to $6.95 billion. Total revenue rose 1.6% to $9.37 billion. The company’s net income rose to $2.25 billion, or 72 cents per share, in the first quarter ended August 31, from $2.14 billion, or 63 cents per share, a year earlier.
“With management citing very strong Database bookings/backlog following a major release in 4Q, the prospect of a new product cycle is back, which would fuel a major new growth engine. Maintain Outperform. Raise price target to $70,” said J. Derrick Wood, equity analyst at Cowen.
Zscaler’s shares jumped about 5% to $60.09 in pre-market trading on Friday; the stock is up over 8% so far this year.
“Q1 was fantastic with total revenue beating guidance by more than $150 million, and non-GAAP earnings per share beating guidance by $0.07,” said Oracle CEO, Safra Catz.
“Our cloud applications businesses continued their rapid revenue growth with Fusion ERP up 33% and NetSuite ERP up 23%. We now have 7,300 Fusion ERP customers and 23,000 NetSuite ERP customers in the Oracle Cloud. Our infrastructure businesses are also growing rapidly as revenue from Zoom more than doubled from Q4 last year to Q1 in this year. I have a high level of confidence that our revenue will accelerate as we move on past COVID-19.”
Oracle stock forecast
Twenty-one analysts forecast the average price in 12 months at $58.17 with a high forecast of $69.00 and a low forecast of $41.00. The average price target represents a 1.47% increase from the last price of $57.33. From those 21 equity analysts, six rated “Buy”, 14 rated “Hold” and one rated “Sell”, according to Tipranks.
Morgan Stanley gave a target price of $62 with a high of $77 under a bull-case scenario and $40 under the worst-case scenario. Stifel raised their stock price forecast to $56 from $48 and Wells Fargo upped their price target to $68.75 from $62.5.
Other equity analysts also recently updated their stock outlook. Barclays raised price target to $59 from $52, Cowen and Company increased their stock price forecast to $70 from $60, Evercore ISI raised target price to $65 from $55, Citigroup upped their price target to $61 from $54, Jefferies raised target price to $65 from $55, RBC increased their target price to $60 from $51 and Credit Suisse increased their price objective to $66 from $62.
We think it is good to buy at the current level and target $65 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.
“Oracle’s current low valuation at ~13x CY21e EPS reflects its slower growth rate compared to peers. Despite potential opportunities within existing database customers and cloud-based ERP applications, offsets from waning businesses mean 2021 likely lacks the catalysts for the positive inflection in revenue growth investors would need to see to drive multiples higher,” said Keith Weiss, equity analyst at Morgan Stanley.
“We see 11% EPS growth in FY21 and 9% in FY22, driven by an aggressive pace of share buybacks. However, cc revenue growth is 2%, in a software sector filled with strong secular growth stories, and just 2% operating income growth points to Oracle potentially reaching peak margins, leaving us Equal-weight at our $62 price target,” Weiss added.
Upside and Downside Risks
Upside: 1) Stronger adoption of Autonomous Database offering drives positive YoY growth in License revenues. 2) Accelerated adoption of Fusion Apps – highlighted by Morgan Stanley.
Downside: 1) Disruptive technologies in the data management market. 2) Rapid migration towards SaaS-based subscription application model hurts near-term optics due to ratable revenue recognition. 3) Strong competition from other secular Cloud application vendors.
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