Bernstein Continues To Be Optimistic On Oracle Ahead Of Q2 Results

Bernstein maintains its Outperform rating on Oracle Corporation (NYSE: ORCL) ahead of its second-quarter results, scheduled for December 15.

Analyst's Take

Analyst Mark Moerdler expects Oracle's cloud revenue to more than offset the decline in new license sales and forex headwind.

“[I]nflection between cloud and license revenue is crucial to drive revenue growth going forward as Oracle transitions to a more cloud-centric company,” Moerdler wrote in a note.

The analyst sees forex as possibly posing about 1.3 percent headwind for reported revenue, recalling Oracle’s first-quarter revenue, which missed consensus primarily due to a 1-percent currency hit.

To reflect forex headwinds, the analyst cut his second-quarter revenue estimate marginally by 0.7 percent to $9.142 billion from $9.200 billion. However, Moerdler reaffirmed his EPS expectation of $0.62 for the quarter. The Street expects EPS of $0.61 on revenue of $9.18 billion.

Cloud Transition

Meanwhile, the analyst’s bullish stance on Oracle is centered on the company’s ongoing cloud transition, which is in its early days. The shift to cloud will boost the fast growing PaaS business, which generates about 2.5x the existing on-premise database maintenance revenue for each customer that moves to PaaS.

Oracle's database customers are expected to move workloads to the Oracle cloud given its flexibility, lower application ownership costs and reduction in the number of database administrators.

“As investors recognize that Oracle is not in secular decline, we believe the bear case will fall away and the stock price will increase,” Moerdler added.

At last check, shares of Oracle were up 0.36 percent to $39.11, while the analyst has a price target of $52.