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Oracle (ORCL) Up 5.7% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Oracle Corporation ORCL. Shares have added about 5.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ORCL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Oracle delivered stellar fourth-quarter fiscal 2018 results. Non-GAAP earnings of 99 cents per share comfortably beat the Zacks Consensus Estimate of 94 cents. Moreover, revenues of $11.260 billion surpassed the Zacks Consensus Estimate of $11.195 billion.

Earnings increased 11.2% from the year-ago quarter. This can primarily be attributed to 2.9% growth in revenues which was toward the higher range of management’s guidance of 1-3%.

Structural Changes

The company has adopted anew Accounting Standards Codification ("ASC") 606 using full retrospective method.

The company had recently launched a bring-your-own-license (BYOL) program which allows customers to move their existing on-premise licenses to the Oracle Cloud. In doing so, Oracle claims that licenses covered by the BYOL program can neither be defined as on-premise nor as cloud.

Consequently, the company now reports its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.

Cloud Drove Solid Top Line

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (60% of total revenues) for the quarter advanced 7% (5% in constant currency) to $6.77 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.

Under the previous reporting structure in last quarter, which was called total Cloud revenues were $1.7 billion.

However, total cloud license and on-premise license decreased 5.4 to $2.48 billion year over year.

Management stated that Fusion ERP and Fusion HCM came in at $2.2 billion in full year 2018. Fusion Apps advanced 62% for the full year, whereas, Fusion ERP was up 68% for the full year. Fusion HCM surged 65%.

Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now fully available and is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”).

The company’s tech ecosystem is more than $21 billion and increased 5% for fiscal 2018. Database ecosystems were up 6%. During the quarter, database new license revenues increased 9%.

The company also stated that its next-generation PaaS grew 45% for the full year and came in at $1.1 billion.

Total hardware revenues were almost flat year over year and came in at $$1.11 billion. Services revenues decreased 1.2% to $883 million.

Operating Details

Non-GAAP operating expenses, as percentage of revenues, decreased 130 basis points (bps) to 52.9%.

As a result, non-GAAP operating income during the quarter came in at $5.3 billion, up 4% from last year non-GAAP operating margin expanded 100 bps from the year-ago quarter to 47%.

Balance Sheet & Cash Flow

As of May 31, 2018, Oracle had cash & cash equivalents and marketable securities of $67.3 billion, down from $70.45 billion sequentially. Operating cash flow for the trailing 12 months was $15.4 billion, while free cash flow was $13.7 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 106 million shares worth $5 billion during the quarter. Over the last 12 months, the company repurchased shares worth $11.5 billion and paid dividends of approximately $3.1 billion. The company also declared a quarterly dividend of 19 cents per share, payable on Jul 31, 2018.

Guidance

For the first quarter fiscal 2019, total revenues are anticipated to grow in the range of 1-3% in constant currency.

Non-GAAP earnings are anticipated to be between 67 cents and 69 cents for the quarter, while in constant currency non-GAAP earnings is expected to be in the range of 68-70 cents.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to nine lower.

Oracle Corporation Price and Consensus

 

Oracle Corporation Price and Consensus | Oracle Corporation Quote

VGM Scores

At this time, ORCL has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, ORCL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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