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Oracle (ORCL) Q1 Earnings: Is Disappointment in Store?

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Oracle (ORCL - Free Report) is slated to release first-quarter fiscal 2019 results on Sep 17.

Notably, Oracle beat estimates in the trailing four quarters, with an average positive surprise of 6.3%.

The company delivered stellar fourth-quarter fiscal 2018 results. Non-GAAP earnings of 99 cents per share comfortably beat the Zacks Consensus Estimate of 94 cents. Moreover, revenues of $11.260 billion surpassed the Zacks Consensus Estimate of $11.195 billion.

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

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.

Oracle’s shares have declined 6.5% in the past year against the industry’s growth of 34.8%.

Expect What

For the first quarter fiscal of 2019, the Zacks Consensus Estimate for revenues is pegged at $9.29 billion, up 0.86% year over year.

Non-GAAP earnings are anticipated to be between 67 cents and 69 cents for the quarter, while in constant currency non-GAAP earnings is expected to be in the range of 68-70 cents. The Zacks Consensus Estimate is pegged at 68 cents per share.

So, let’s see how things are shaping up prior to this announcement.

Factors to Consider

The company is benefiting from strong adoption of its cloud-based solutions. We believe that Oracle’s growing cloud market share will continue to drive top-line growth. Further, partnerships with the likes of Accenture (ACN - Free Report) are helping the company rapidly expand its cloud-base clientele.

Despite expanding its foothold in the cloud space, the presence of already established players like Amazon and Microsoft in both the PaaS and IaaS may remain a potential headwind.

Notably, Oracle no longer intends to break out its cloud revenues and does not provide any guidance on SaaS, Cloud PaaS and IaaS. This move is likely to aggravate investor concern regarding the company's outlook.

Moreover, 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 transitions from licensing to cloud is likely to be affect Oracle.

Earnings Whispers

Our proven model does not conclusively show that Oracle is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Oracle’s Earnings ESP is -0.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Oracle currently carries a Zacks Rank #4 (Sell) which when combined with earnings ESP of -0.35% makes surprise prediction difficult. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With a Favorable Combination

Here are two companies, which, as per our model, have the right combination of elements to post an earnings beat this quarter:

FactSet Research Systems Inc. (FDS - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE, Inc. (NKE - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank #3.

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