Susquehanna Cuts Oracle Estimates, Sees More FX Headwinds

• Oracle Corporation (NYSE: ORCL) will report its second quarter (fiscal 2016) financial results later this month. The call is expected some time around December 16.
• In a report issued Friday, Susquehanna analysts J. Derrick Wood and Rakesh Kumar trimmed their estimates for the quarter.
• The firm also lowered its forward estimates to reflect increased FX headwinds.

According to Susquehanna, checks indicate strong activity and pipelines with Oracle’s SaaS business, especially with Fusion ERP/HCM, a report issued Friday assured. However, the firm's checks also point to a slightly softer government budget flush for the company year-over-year, principally around Exadata systems, since stimulus spending for healthcare exchanges seems to have declined.

Consequently, Wood and Kumar decided to modestly lower their year-over-year cc revenue growth forecast from +1 percent to flat, still within the guidance range and pretty much in line with consensus estimates. On the other hand, the firm's earnings estimate of $0.60 per share remained unchanged.

For the third quarter, the experts envision +2 percent cc revenue growth, "as comps are slightly easier and as increasing traction with SaaS (especially SaaS revenue recognition) should gradually start to benefit top-line growth." However, Oracle will likely face increasing FX headwinds as the Euro continues to fall. Since they believe most analysts have not adjusted their estimates to reflect the incremental headwinds yet, they suspect further downward revisions could come after the company repots its second quarter results.

"We believe this may be a bit of an overhang on the stock in the near-term. In the longer-term, we remain constructive around ORCL's improving positioning within SaaS/PaaS that should begin to drive greater wallet share. The next important catalyst to watch for will be a return to Y/Y growth in operating margins, which we think could take place in 4Q16," the analysts concluded, reiterating a Positive rating and $47 price target on the shares.

Shares of Oracle were up more than 3.6 percent on Friday afternoon.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.