Macquarie's New Price Target On Oracle Represents ~14% Upside

Macquarie’s Sarah Hindlian believes Oracle Corporation (NYSE: ORCL)'s revenues and EPS are set to inflect and stabilize in FY17 and FY18.

Hindlian maintains an Outperform rating on the company, with a price target of $46, which represents 14 percent upside from the current stock valuation.

Inflection In Store

The analyst explained that the company was set to benefit from the stabilization of its core database business, following the delayed release of the R2 update for the 12c database, and the promotions for its cloud business.

“Oracle’s software billings are extremely noisy due to its shift to the cloud,” Hindlian stated, while adding that “the worst new license revenue headwinds from the cloud transition may be moving behind Oracle and that total normalized software billings may have in fact grown ~5 percent in 1H’FY16.”

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R2 Update Awaited

Hindlian also explained that cautious customers usually tend to wait till bugs have been worked out and usually upgrade only with the second version of a product.

There appear to be a large number of customers awaiting the significantly delayed release of the R2 update for the 12c database. The update includes the highly in-demand in-memory and multi-tenant add-on functionality.

Hindlian expects 1 percent adoption of 12c R2 by Oracle’s installed database customers, leading to a 250 bps increase in revenue for 2HFY16.

“We expect Oracle to exit FY’16 with cloud SaaS and PaaS revenues accelerating to growth above 50 percent Y/Y as it laps its aggressive cloud promotional activity,” Hindlian concluded.