Oracle Beat Takes Stock to Highs Yet Analysts Stay Skeptical

(Bloomberg) -- Oracle Corp. shares rose to record levels on Thursday after the company reported better-than-expected revenue and gave an outlook that pointed to ongoing momentum.

While the results were seen as a sign of progress for a company that has lagged the overall technology sector for years, analysts weren’t convinced they represented an inflection point. UBS questioned whether the growth in the quarter was sustainable, while Morgan Stanley said the debate was on whether the quarter represented a “bounce or something more durable.”

The stock gained as much as 7.1% to hit all-time intraday highs.

Here’s what analysts are saying about the results:

Morgan Stanley, Keith Weiss

The print “likely reopens the debate on Oracle’s growth potential,” but the firm questions whether the results represent a “bounce or something more durable.”

“While the Q4 numbers represent a poignant data point in favor of significant growth potential within Oracle’s large database installed base, the preponderance of evidence still suggests a muted top line growth outlook ahead.”

Affirmed equal-weight rating and $59 price target, although “our interest is piqued.”

Jefferies, John DiFucci

“We don’t want to get ahead of ourselves,” but “we’ve been waiting for signs of what we believe will be a multi-year product cycle on the back of database options.”

It may take another 18 months “before we start to see something as relevant as this start to boost total revenue by mid-single digits, which in turn should drive double-digit cash flow growth” for years.

Buy rating, price target raised to $66 from $61.

UBS, Jennifer Swanson Lowe

After this quarter, the debate is “likely to be whether demand for autonomous database can sustain that healthy license revenue growth” in fiscal 2020.

The first-quarter outlook suggested “we may not be fully out of the woods yet, but management was optimistic that growth in star businesses was starting to offset declines in legacy businesses.”

Neutral rating, price target raised to $57 from $54.

RBC Capital Markets, Matthew Hedberg

“Encouraged” by the results, but will “look for signs that Autonomous DB and Cloud at Customer are moving beyond the trial phase at a meaningful number of customers to become more constructive.”

Sector-perform rating, price target raised to $59 from $57.

Deutsche Bank, Karl Keirstead

Results were “better than feared,” but “we’d caution that a good portion of the license revs upside was due to one-time 606 accounting issues.”

Notes management didn’t cite any demand softness on its conference call.

Hold rating, target raised to $52 from $48.

What Bloomberg Intelligence Says:

“Oracle’s substantial cash generation enables its large stock repurchases. Yet if management continues to execute buybacks at historically high current rates, underperformance may emerge relative to peers.”-- Analyst Conor Cuddy-- Click here for the research

(Updates stock and chart to market open, adds BI commentary.)

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

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