Oracle (ORCL) 2nd Quarter Earnings: What to Expect

Database and Cloud software giant Oracle (ORCL) is set to report second quarter fiscal 2018 earnings results after the closing bell Thursday.

Oracle shares are up about 27% this year and have rallied as much as 40% from around $38 at the beginning of the year to a recent 52-week high of $53.14. These gains have been driven by the company’s better-than-expected cloud results, where it competes with leaders like Salesforce (CRM) and Microsoft (MSFT).

Although Wall Street analysts are forecasting another solid quarter for the Redwood City, Calif.-based company, there’s nonetheless doubt that growth expectations are now too high to beat, especially given the stock’s already strong performance. For the company, that’s a good problem to have. That’s not the case for the stock, however, which has fallen about 4% in three months, including an 8% decline following Q1’s results, which marked the company’s worst one-day drop in four years. Take a look at the chart below.

On the glass-half-full side, Oracle shares — currently trading at around $50 — are still about 12% below the Street’s consensus price target of $56. But the company will not only need a beat-and-raise on Thursday to get 2018 started off on the right foot, the management must convince investors that the improvements Oracle has made in its transition to a software-as-a-service, or SaaS, model, is not running out of steam.

In the three months that ended November, analysts expect Oracle to report adjusted earnings of 68 cents per share on revenue of $9.57 billion. This compares to the year-ago quarter when earnings were 61 cents per share on $9.07 billion in revenue. For the full year, ending May 2018, earnings are projected to be $2.94 per share, up from $2.74 a year ago, while revenue of $39.63 billion would rise about 4.6% year over year.

Analysts will pay close attention to Oracle’s Individual segment performances, which have posted high double-digit annual revenue growth rates, offsetting weakness in the company’s core software licenses business and hardware businesses. For Thursday consensus estimates for total cloud revenue calls for an increase of almost 50% year over year to $1.56 billion. Meanwhile, SaaS is expected to account for more than three-quarters of that total or about $1.14 billion. That, combined with an expected 1% rise in total on-premise software, reaching $6.19 billion, should offset an almost 8% decline in new software licenses.

On their own, these numbers would be impressive and suggest that the company — despite the downbeat outlook for Q2 — is operating on its stated objectives. But will they be enough for investors? From my vantage point, the rate at which the management has accelerated the company’s cloud transition to the extent that it now wants to take on Amazon (AMZN) has been impressive.

As such, while Oracle shares, which are still trading near 52-week highs, don’t scream bargain, I continue to expect the shares to reach $60 to $65 in the next 12 to 18 months, delivering some 20% return.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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