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Oracle Slips: Bulls Urge Patience with Cloud Move; Bears Await ‘Inflection’

Shares of Oracle (ORCL) are down $1.29, or 3%, at $36.98, extending last night’s after-hours decline after the company missed fiscal Q1 revenue and forecast this quarter’s revenue slightly ahead of expectations, but with the caveat that the rising U.S. dollar will continue to weigh on reported results.

There are no ratings changes today, that I can see, but estimates and price targets are coming down at most shops. Bull and bear agree this was a “mixed bag” of a quarter, with several metrics underperforming, and the forecast for revenue, though slightly above the published estimates, is in fact below what most expected when factoring currency.

The debate today is how patient investors will be as Oracle continues its transition to the cloud.

Bullish!

Keith Weiss, Morgan Stanley: Reiterates an Overweight rating, and a $45 price target. “Drawing a line in the sand on FY16 being the trough for op income should give investors some comfort on the duration of cloud transition impacts. However, with Q1 revs coming in light, Q2 forecasts coming down and a steep cloud ramp in 2H16, ORCL may have to show the numbers before getting buy-in. While strong bookings (and billings) growth in the SaaS & PaaS business aligns well to our positive survey work, the lengthening translation of those strong bookings into revenue growth, the larger than expected impacts on the income statement from the cloud transition and a lack of clarity on the depth or duration of those impacts has left some investors frustrated with Oracle.” Weiss cut his estimates for this fiscal year to $37.7 billion and $2.57 per share in earnings from a prior $38.9 billion $2.64.

Michael Turits, Raymond James: Reiterates an Outperform rating, and cuts his price target to $41 from $45. “The F2Q total revenue growth guide of -2 to +1% y/y CC missed what we believe was consensus of +5% CC and implies a slight F2Q CC organic decline y/y at the midpoint. The total software growth guide of 0-2% CC missed what we believe was consensus of +6%. The SaaS/PaaS revenue growth guide of 36-40% missed consensus of 47%, though management said it would hit 60% CC growth in F4Q [...] While we are lowering our top line forecasts on these trends, EPS gets support from increased buy backs with the stock off 15% YTD. Despite risk around the shift to cloud, we remain positive on Oracle’s opportunity to leverage its stack of hardware, apps, middleware, database, and analytics into a leading hybrid cloud offering. ORCL also remains an attractive cash return story with a 1.6% dividend yield and strong history of share repurchases.” Turits cuts his full-year estimates to $37.677 billion in revenue and $2.61 per share in EPS from a prior $38.305 billion and $2.64.

Frederick Grieb, Nomura Securities: Reiterates a Buy rating, and cuts his target to...


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