Oracle Corporation ORCL has exhibited impressive price performance on a year to date basis. Notably, shares of Oracle have returned approximately 18.4% on a year-to-date basis, outperforming the industry’s rally of 16.5%. In the same period, the stock has outperformed S&P 500 index’s growth of 12.6%.
We note that Oracle has delivered a positive earnings surprise of 3.97% in the trailing four quarters. Moreover, the company has a long-term expected EPS growth rate of 9.8%.
Let’s delve deeper and analyze the factors driving Oracle’s robust quarterly performances.
Oracle is benefiting from increasing adoption of its product portfolio and synergies from strategic buyouts. Moreover, ongoing cloud-based momentum bodes well for the company’s top line.
Recently, Things Remembered opted for Oracle Customer Experience (“CX”) Cloud suite’s Commerce Cloud solution to enhance business, resulting in a new customer win for Oracle. The company’s focus on strengthening the comprehensive cloud-based SaaS application suites for its CX cloud offering is anticipated to drive adoption, in turn favoring the top line.
Oracle also introduced Oracle Retail Xstore Office Cloud Service and announced several enhancements to Retail Omnichannel suite at National Retail Federation (“NRF”) 2019. Oracle’s move to ramp up Retail Omnichannel product suite, is in sync with the company’s strategy to capitalize on the digital commerce market and strengthen competitive position against peers like Salesforce.com, SAP, Adobe (especially after Magento acquisition), among others.
Oracle Retail also announced collaboration with One Door in a bid to strengthen retail clientele’s in-store merchandising methods with advanced assortment and layout techniques. This incremental adoption of Oracle’s services is anticipated to aid financial performance of the company in the foreseeable future.
Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now available. The new database is projected to generate incremental revenues for the company, going ahead. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon’s cloud platform, Amazon Web Services (“AWS”).
Additionally, traction witnessed by Oracle NetSuite bodes well. NetSuite was recently selected by UAE-based Denaster General Trading LLC. With NetSuite deployment, the retail distributor attempts to expand business beyond Middle East, particularly in the U.K. and India.
Oracle delivered third-quarter fiscal 2019 non-GAAP earnings of 87 cents per share, which surpassed the Zacks Consensus Estimate of 84 cents. Revenues of $9.618 billion marginally outpaced the Zacks Consensus Estimate of $9.608 billion.
Earnings increased approximately 8% from the year-ago quarter (up 12% in cc). Notably, revenues decreased 1% year over year but increased 3% in cc. This was toward the higher range of management’s guidance of 2-4% in cc.
Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (70% of total revenues) for the last reported quarter advanced 1% (4% in constant currency) to $6.66 billion.
Share Repurchases & Dividends
Oracle repurchased around 206 million shares worth $10 billion during the reported quarter. Over the last 12 months, the company repurchased 728 million shares. It also increased the quarterly dividend to 24 cents per share (up 26% from the previous quarter), payable on Apr 25, 2019. The dividend payout appears sustainable backed by strong and relatively stable cash flow, which in turn makes the stock quite attractive.
Solid Growth Prospects
Oracle has solid growth prospects, as is apparent from the Zacks Consensus Estimate for fiscal 2020 earnings of $3.69 per share, representing year-over-year growth of 8.4%. Meanwhile, the company's revenues are anticipated to increase by 2.5% in fiscal 2020.
However, stiff competition in the cloud is expected to hurt margins and will make revenue growth difficult, going forward. Further, large acquisitions can negatively impact the company’s balance sheet in the form of a high level of goodwill and intangible assets. Further, lawsuits and currency volatility, owing to its transition from licensing to cloud, are likely to affect Oracle.
We expect the aforementioned factors to aid the company sustain strong momentum and stay afloat amid difficult times. Consequently, we suggest that investors retain the stock for the time being.
Zacks Rank and Stocks to Consider
Currently, Oraclecarries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS, Synopsys, Inc. SNPS and Symantec Corporation SYMC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cadence, Synopsys and Symantec have long-term earnings growth rates of 12%, 10% and 7.9%, respectively.
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