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Should You Buy Oracle (ORCL) Stock Ahead of Q1 Earnings?

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Oracle (ORCL - Free Report) has seen its stock price climb over 6% in the last three months as investors respond to the firm’s solid fiscal fourth quarter financial results. Now, let’s take a look at what to expect from the enterprise software and cloud computing powerhouse’s Q1 earnings report to see if investors should consider buying ORCL stock ahead of Monday's release.

Overview

Oracle saw its adjusted Q4 earnings jump by 11%, which topped our Zacks Consensus Estimate. The firm also beat our quarterly revenue estimate and saw its Q4 revenues jump 3% to $11.3 billion. Plus, Oracle’s Cloud Services and License Support revenues popped 8% to reach $6.8 billion for the quarter.

However, it has hardly been smooth sailing for the historic tech company over the last year. Oracle announced just recently that top executive Thomas Kurian has taken a leave of absence. Kurian, who is the president of product development, stepped away from Oracle amid differences with co-founder Larry Ellison.

Kurian hoped that Oracle would try to make more of its software available to run on Amazon (AMZN - Free Report) and Microsoft’s (MSFT - Free Report) public cloud networks to help expand beyond its own struggling cloud infrastructure, according to Bloomberg.

Amazon grabbed 34% of the cloud market last quarter, while Microsoft held 14%. In fact, Oracle didn’t even make the top five, with IBM (IBM - Free Report) at 8%, Google (GOOGL - Free Report) at 6%, and Alibaba (BABA - Free Report) at 4%, according to Synergy Research Group.

It is this lack of substantial cloud growth that has seen ORCL stock move almost completely sideways over the last year, while its industry has experienced a 21% jump.

 

Valuation

Oracle stock is currently trading at 15.6X forward 12-month Zacks Consensus EPS estimates, which represents a massive discount compared to its industry’s 33.4X average and the S&P 500’s 17.5X. ORCL has also traded as high as 18.9X over the last year, with a one-year median of 16.9X.

If we jump back over the last three years, we can see that Oracle’s valuation picture is not that stretched.

 

Outlook

Our current Zacks Consensus Estimates are calling for Oracle’s first quarter revenues to reach $9.29 billion, which would mark 0.86% growth from the year-ago quarter. Investors should be more pleased to note that the firm’s adjusted quarterly earnings are projected to jump by 9.68% to $0.68 per share.       

Yet, Oracle has seen its first-quarter EPS projection sink by $0.04 over the last 90 days, while also seeing its quarterly and full-year earnings estimate revision activity trend completely downward.

Bottom Line

Oracle is currently a Zacks Rank #4 (Sell) based, for the most part, on its negative earnings revisions. Plus, ORCL has only topped our quarterly earnings estimates in five out of the last 10 quarters. The firm has also seen its stock price sink following its quarterly earnings release in the trailing four quarters. Therefore, investors might want to avoid Oracle stock ahead of earnings.

Oracle is scheduled to release its Q1 fiscal 2019 financial results after the market closes on Monday, September 17.

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