Oracle: Color on Quarter
- FBR Capital would characterize as a disappointing performance across the board in the co's seasonally strong fiscal year-end. Although the co clearly still has more "wood to chop" given the F4Q performance, they believe Oracle is headed in the right direction (generally in-line August guide) thanks to a strong product cycle and healthy secular trends for cloud/engineered systems spend. While no acquisition was announced (potential acquisition of MCRS recently reported), they believe Mr. Ellison & Co. will be aggressive on M&A over the coming year as it is clear, in their opinion, that Oracle needs to go on the "deal warpath" to bulk up its product portfolio (e.g., cloud, big data, and cybersecurity).
- Oppenheimer notes ORCL reported soft 4Q results for the second straight year partially owing to delayed revenue recognition from selling more cloud software than licenses. This trend aligns with our view that market fundamentals for SaaS adoption have never been better from business desires to replatform apps. Additionally, FY EPS growth came in below 10% for the second straight year, a key growth target for investors, despite easier comparisons and better macro. This result pushes ORCL's 3-year EPS CAGR also below 10%. They maintain Perform rating on ORCL on concerns Oracle maybe challenged to consistently expand margins to reach and sustain a 10%+ earnings growth-trajectory that's needed to justify multiple expansion over the near-and-intermediate terms, given current model transition.
- Stifel notes Oracle delivered a messier-than-expected F4Q14 print. Oracle is laser focused on growing its cloud business and is seeing healthy gains across its SaaS/PaaS/IaaS cloud assets. As the cloud shift becomes more pronounced, they expect license revenue growth to remain somewhat muted, but overall believe this is a healthy long-term move. They also think much of the heavy lifting in-terms of cloud-buildout is in the rearview-mirror and, as a result, think it can scale without significantly affecting profitability. The bottom line is they believe Oracle can sustain mid-single digit growth, rapidly grow its cloud business, and deliver strong free cash flow (~9% FCF yield) in coming years. Coupled with an attractive valuation, they remain buyers.
- BMO notes Q4 softness appears to be the result of thousands cuts. However, mgmt remains bullish on cloud transition progress and bookings and new customer metrics remains very good. The stock will likely give back some, given improving sentiment headed into the call. However, they expect investor focus to continue to shift away from the perception of Oracle as a secular loser to one that will be able to participate in the shift to the cloud. Valuation has expanded in line with peers'; however, accelerating revenue growth and below-trend valuation leave them positive on the shares and make ORCL the name to own in mega-cap software; $45 tgt.
- Citigroup downgraded the stock to Neutral
- ORCL is down 6%; while the quarter was disappointing, the Street seems to be encouraged by the co's direction and progress in the cloud; the stock has a lot of support at the $40 level and is still in a clear uptrend after breaking out in December of last year; its closest peer SAP is down 0.8% in Germany.