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Analysts Weigh in Following Oracle Corporation’s (ORCL) Disappointing Results

By George Macdonald

Yesterday, shares of Oracle Corporation (NYSE:ORCL) dropped 4.05% after the company reported lower-than-expected Q1 earnings.

Following the earnings release, analyst Brian Schwartz of Oppenheimer & Co. maintained a Perform rating for the stock. Schwartz acknowledges that with revenue results missing estimates, it has been another tough quarter for Oracle. According to Schwartz, some of the drivers behind this drop are ”continued FX and model transition impacts, and a faster cannibalization of license sales from Fusion products and disincentivizing reps.”

Schwartz says, “The 2Q EPS guidance is below consensus and will reduce FY2016 EPS forecasts quite a bit.” On the positive side, bookings of PaaS and SaaS have increased by 165% year-on-year.

In conclusion, while Schwartz comments,  “With an uncertain near-to-medium term outlook for ORCL’s estimates and worsening margin profile, we reiterate our Perform rating.”  Although he believes Oracle has a strong base in its major markets, there is uncertainty about the timing and the level of stabilization in license sales and operating margins. The shift towards cloud technologies and model transition remains an area of concern.

For 2016, Schwartz has cut his revenue estimates to $38 billion (from $38.7 billion) and EPS estimates to $2.70 (from prior $2.85).

Brian Schwartz has a 100% success rate recommending Oracle with a 15.1% average return per ORCL rating when measured over a one-year horizon and no benchmark.

More bullish on the stock, Canaccord Genuity analyst Richard Davis maintained a “Buy” rating on Oracle. However, he has cut hisprice target to $47, from his earlier target of $50.

Giving reasons for maintaining the rating, Richard said, “While it’s more fun to own exciting, fast-growing companies alongside the financial equivalent of the ‘cool kids,’ sometimes you can make money in stocks by owning companies that investors conclude aren’t as bad as they thought. Indeed, it is during the early stages of a perception change that we have seen the most alpha.”

In a nutshell, he says the company is not as bad as perceived by investors. On the contrary, according to Davis, the company’s business is improving, but this fact is not reflected in the stock’s price.

Davis expects investors to take a more positive view of the business and give the stock one or two multiple points as the transition to cloud translates into revenue growth. In this context he says, “If so, there is every reason to expect ORCL to deliver a total return in excess of 20% over the next 12 months.”

Similar to Schwartz, Davis has cut his revenue estimate for the company. Davis expects 2016 revenue at $37.94 billion as compared to his earlier estimate of $38.16 billion. However, Davis has slightly increased the 2016 EPS estimate to $2.56, from $2.55.

Richard Davis has a 47% success rate recommending the technology company with a 0.6% average return per ORCL rating when measured over a one-year horizon and no benchmark.

According to the 17 analysts polled by TipRanks in the last three months, 12 analysts are bullish on Oracle while 5 recommend holding the stock. The average 12-month price target between the 12 analysts is $45.57, marking a 25% potential upside from current levels.