While losing a Buy rating is never a good thing, too many key firms came out in defense of Oracle on Wednesday, despite a poor earnings report. It turns out that the spending glut may be near the worst of the pressure, meaning that things might start improving again soon.
Another reason this downgrade from Argus may not matter so much is that the downgrade was on valuation after a strong run-up in the stock. In short, the stock reached the Argus price target of $39.
Argus did say that Oracle is at risk from smaller and faster cloud services specialists like Salesforce.com Inc. (NYSE: CRM). What the firm was more concerned with was a potential vulnerability of Oracle’s core database software offerings. The report said”
It is unclear whether the company can protect, let alone expand, both its software and hardware businesses as enterprises move away from the data center and toward cloud-based solutions. We are lowering our FY14 EPS estimate to $2.90 from $2.93 as Oracle’s fiscal 3Q14 results came in $0.03 below our estimate. We are maintaining our FY15 forecast at $3.13.
Argus is looking for Oracle to grow its earnings by 10% annually over the next five years. Still, the firm lowered its long-term rating to Hold from Buy as well. Other analyst calls seen on Thursday were as follows:
- Canaccord Genuity said, “Respectable but unexceptional quarter against fairly easy comparisons.”
- Citigroup maintained its Buy rating, but raised its price target to $44 from $39.
- Credit Suisse maintained its Outperform rating with a $40 price target, and it remained on the firm’s Focus list. Its outlook was that Oracle stands to benefit from several drivers during 2014 and into 2015.
- FBR Capital Markets said that Oracle came up short in license revenues, but accelerated booking in the SaaS business. This speaks to its sales force expansion and move to the cloud to drive growth in the 12 to 18 months. The firm believes the company is headed in the right direction.
- Jefferies maintained its Hold rating but raised its target price to $38 from $37.
- Merrill Lynch maintained its Buy rating and $44 price target. The firm said, “We view this pullback as a buying opportunity. Cloud bookings grew 60%+ (Fusion apps grew triple digits), and 30%+ organic, including 65 seven or eight figure deals.”
- Morningstar maintained its Hold rating.
- Oppenheimer maintained a Perform rating, citing execution risk and less model predictability.
- S&P Capital IQ maintained its Hold rating.
- Stifel Nicolaus maintained its Buy rating on Oracle, and actually adjusted its price target up to $43 from $40 in the call.
- Zacks maintained its Zacks Rank #4 (Sell) rating, based on no dividend hike depicted and competition from Microsoft, IBM, and others.
After about 90 minutes of trading, Oracle shares were down only two cents to $38.52.
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