The Street's Reaction To Oracle's Q2 Earnings Beat

Oracle Corporation ORCL reported Monday a top-and-bottom line beat in its fiscal second-quarter earnings report. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Oppenheimer's Brian Schwartz maintains a Perform rating on Oracle with no price target.
• Piper Jaffray's Alex Zukin maintains at Overweight, unchanged $52 price target.
• Bank of America's Kash Rangan maintains at Neutral, unchanged $55 price target.
• KeyBanc Capital Markets' Monika Garg maintains at Sector Weight, no price target.
• Jefferies' John DiFucci maintains at Buy, unchanged $61 price target.

Shares of Oracle were trading at $45.96 Tuesday morning.

Oppenheimer: 4 Positives And 4 Negatives

Oracle's earnings report is highlighted by four positive and four negative read-outs, Schwartz said in a note. The positives include:

• Sixteen percent EPS growth due to financial engineering.
• Cloud ERP rose 32 percent.
• Cloud services, support and licenses revenue exceeded the Street's estimates.
• The company bought back nearly $10 billion worth of stock.

The four negative read-outs include:

• Bottom half fiscal 2019 guidance implies an EPS growth slowdown with modest to zero revenue growth.
• The platform and infrastructure business declined in the quarter.
• Operating margin fell 100 basis points year-over-year.
• North America, and EMEA/Africa business fell 1 percent in the quarter.

Piper Jaffray: Clear Focus

Oracle's earnings print and conference call made it clear its main focus moving forward is on applications (ERP/HCM) and database, Zukin said. Encouragingly, the company is making "clear progress" in the applications business but the database business is still in the early stages.

While the Street will continue debating the company's ability to move both businesses to the cloud, the analyst said the remaining $9.8 billion in share purchase authorization alone can support EPS growth in the near term.

Related Link: Oracle Shares Look Inexpensive, Barclays Says After Q1 Earnings Beat

Bank Of America: 'Mixed' Metrics Remain Unchanged

Exiting Oracle's earnings report, two notable metrics remain "mixed" that prevent a bullish stance on the stock, Rangan said.

• Cloud services and license support rose 5 percent in the quarter and implies a deceleration from 7 percent for fiscal 2018.
• Operating income growth continued to decelerate from 3 percent last quarter to zero.

A bullish stance on Oracle's stock would also requires revenue to accelerate at a mid-to-high single digit and a 5 to 6 percent organic software revenue growth rate, the analyst said.

KeyBanc: Cloud Concerns

Oracle's management now offers few metrics to evaluate the growth of its cloud business and it's likely a complete transaction to the cloud is taking longer than expected, Garg said. The Fusion ERP and NetSuite ERP showed a combined revenue growth of 32 percent, while the NetSuite business rose 25 percent in the quarter. These comments are "difficult to reconcile" with the flattish quarter-over-quarter growth seen in the "cloud and support" segment.

Jefferies: 'Huge' Buyback

Oracle bought back nearly $10 billion worth of its stock in the quarter on top of last quarter's $10 billion, DiFucci noted. In fact, the company bought back $28.8 billion of its stock over the past 12 months which lowered the total share count by 12 percent. The "huge" pace of buyback will likely continue moving forward but at a slightly lower pace of $7.5 billion in each of the next two quarters.

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