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Oracle (ORCL) Down 1.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Oracle (ORCL - Free Report) . Shares have lost about 1.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Oracle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Oracle Beats Q1 Earnings Estimates, Revenues Up Y/Y

Oracle Corporation reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of 71 cents per share surpassed the Zacks Consensus Estimate of 68 cents. However, revenues of $9.2 billion marginally lagged the Zacks Consensus Estimate of $9.28 billion.

Earnings increased approximately 16.4% from the year-ago quarter (up 19% in cc). Further, revenues increased 1% year over year and 2% in cc which was within management’s guidance of 1-3%.

Structural Changes

The company had adopted a new Accounting Standards Codification ("ASC") 606 using full retrospective method in the fourth quarter.

The company had recently launched a bring-your-own-license (BYOL) program which enables customers to shift their existing on-premise licenses to the Oracle Cloud. In doing so, Oracle claims that licenses covered by the BYOL program can neither be defined as on-premise nor as cloud.

Consequently, the company now reports its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.

Cloud Drove Solid Top Line

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (72% of total revenues) for the quarter advanced 3% (4% in constant currency) to $6.61 billion.

However, total cloud license and on-premise license decreased 3% year over year to $867 million year over year.

Management stated that Fusion ERP and Fusion HCM is more than $2.5 billion in the past 12 months. Fusion ERP was up 40% for the full year.

Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now available. This is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”).

The company’s tech ecosystem is more than $21 billion in the past 12 months.. BYOL remains strong buoyed by new database license and support revenue, both of which were up mid-single digits.

Total hardware revenues were down 4% (3% in cc) year over year and came in at $$904 million. Services revenues decreased 5% (4% in cc) to $813 million.

Operating Details

Non-GAAP operating expenses, as percentage of revenues, decreased 10 basis points (bps) to 59.2%.

As a result, non-GAAP operating income during the reported quarter came in at $3.76 billion, up 1.3% from last year. Non-GAAP operating margin expanded 20 bps from the year-ago quarter to 40.9%.

Balance Sheet & Cash Flow

As of Aug 31, 2018, Oracle had cash & cash equivalents and marketable securities of $60.1 billion, down from $67.3 billion sequentially. Operating cash flow for the trailing four quarters was $15.5 billion, while free cash flow was $13.9 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 212 million shares worth $10 billion during the reported quarter. Over the last 12 months, the company repurchased 440 million shares. The company increased the share repurchases authorization by $12 billion during the quarter. The company also declared a quarterly dividend of 19 cents per share, payable on Oct 30, 2018.

Guidance

For the second quarter of 2019, total revenues are anticipated to grow in the range of 0-2% in constant currency.

Non-GAAP earnings are anticipated to be between 77 cents and 79 cents for the second quarter, while in constant currency non-GAAP earnings is expected to be in the range of 78-80 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Oracle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Oracle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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