Buy Oracle (ORCL) Stock Ahead of Q1 2020 Earnings?

Oracle ORCL beat both top and bottom-line estimates last quarter and its shares have outpaced the broader technology market over the last 12 months, up 12% against its industry’s 1% decline. Oracle has, however, struggled to inspire as much confidence on Wall Street over the last five years or so because of its inability to truly capitalize on the rise of cloud computing. But is now the time to buy ORCL stock heading into Q1 2020 earnings?

ORCL Overview

Oracle is a historic business-related software giant that went public in the mid-1980s after its founding in the late ‘70s. The Redwood Shores, California-based firm is still a global tech powerhouse and boasts that it is the No. 1 provider of business software, with over 430,000 customers. Oracle’s growth has slowed down in recent years as companies big and small join the cloud computing revolution.

Industry giants Microsoft MSFT and Amazon AMZN have seen their stock prices soar as they expand their cloud offerings. Google GOOGL, IBM IBM, and Alibaba BABA come in behind MSFT and AMZN, while Oracle struggles to gain market share. Of course, Oracle is actively growing and trying to penetrate the cloud market and other potential growth areas.





In June, Oracle and Microsoft announced that two firms set up a “cloud interoperability partnership” that will allow customers to essentially use both MSFT’s Azure and Oracle Cloud. Overall, there are many more details to dive into, but simply put, investors need to focus on Oracle’s ability to shift its business to a more modern, cloud-focused, software-as-a-service model that has seen Salesforce CRM and others thrive. “Our high-margin Fusion and NetSuite cloud applications businesses are growing rapidly, while we downsize our low-margin legacy hardware business,” Oracle CEO Safra Catz said in prepared remarks last quarter.

“The net result of this shift away from commodity hardware to cloud applications was a Q4 non-GAAP operating margin of 47%, the highest we've seen in five years.”





Q1 Outlook & Beyond

Looking ahead, Oracle’s first quarter fiscal 2020 revenue is projected to pop 0.96% to reach $9.29 billion, based on our current Zacks Consensus Estimates. This would roughly matched Q4’s 1% growth, which topped our estimates, and marked the second straight quarter of revenue growth after two straight periods of declines.

ORCL’s full-year fiscal 2020 revenue is projected to jump 2.3% to reach $40.43 billion. The firm’s full-year growth would easily top 2019’s roughly flat movement but come in below 2018’s 4.2% expansion. Peeking further down the road, the company’s fiscal 2021 revenue is projected to jump 2.9% above our current-year projection to reach $41.60 billion.

At the bottom end of the income statement, ORCL’s adjusted Q1 earnings are projected to surge 14% to hit $0.81 per share. This would mark a slowdown from last quarter’s 23% EPS growth, which did easily top our estimates.

The company’s full-year EPS figure is then projected to pop 10.8%, with 2021 expected to come in 10% above our 2020 estimate. We should also note that ORCL almost always tops our quarterly earnings estimates.





Bottom Line

Oracle is a Zacks Rank #3 (Hold) right now that sports a “B” grade for Growth in our Style Scores system. We can also see that ORCL is trading at a huge discount compared to its industry’s average at the moment, as it has for the past decade. More importantly, the company has traded as high as 17X forward 12-months Zacks earnings estimates in the last year (14.8X right now).

Oracle also looks as though it is poised to post some solid top and bottom-line growth over the next serval years. ORCL also currently pays an annualized dividend of $0.96 per share, with a 1.81% yield. This rests above the 10-year U.S. Treasury note’s 1.64% yield (as of late afternoon Sept. 9), which makes Oracle stock pretty attractive all on its own—especially considering that the yield is not artificially inflated due to a massive selloff. Plus, ORCL returns a ton of value to shareholders through buybacks, reportedly coming in only second to Apple AAPL last year.

Investors need to pay close attention to any and all cloud updates. And playing a stock around earnings always presents danger since no one ever knows how Wall Street will react. Those feeling a bit risky might scoop up some shares beforehand, while others might want to consider buying if ORCL provides upbeat guidance.

In the end, Oracle is a dividend-paying tech giant that looks stable amid our current global economic uncertainty. With this in mind, there are many worse places to put some money at the moment.

Oracle is set to release its Q1 fiscal 2020 results after the closing bell on Thursday, September 12.

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