What to Expect From Oracle Earnings

Oracle Corp. (NYSE: ORCL) is scheduled to report its fiscal second-quarter financial results after the markets close on Wednesday. The consensus estimates from Thomson Reuters call for $0.60 in earnings per share (EPS) on $9.06 billion in revenue. In the same period of the previous year, it posted EPS of $0.69 and $9.61 billion in revenue.

This old-school large cap tech stock is very reasonable valuation-wise, but its most recent earnings missed Wall Street estimates again. Oracle trades at 13.9 times estimated 2016 earnings and still provides solid free cash flow yield.

Oracle plans to make almost all of its services available via the Internet, as the database-software company changes its business model to fit a new competitive landscape. Around 95% of Oracle’s products are expected to be available on the cloud by the end of this year.

Many on Wall Street expect version 2 of the 12c database to drive an Exadata product cycle, and simply don’t believe that’s sufficiently discounted in the stock. Some firms did lower the near-term cash flow because of the cost of the very aggressive move to the cloud, but they are boosting long-term growth metrics. Jefferies analysts attended the recent OpenWorld conference and Oracle’s analysts day and came away impressed. They also noted that the 12C database version 2 has been released in beta form.

A few analysts weighed in on Oracle ahead of its earnings:

• Canaccord Genuity reiterated a Buy rating and a $44 price target.
• Goldman Sachs has a Buy rating with a $47 price target.
• Barclays reiterated an Overweight rating and a $48 price target.
• Pacific Crest reiterated an Equal Weight rating.
• Deutsche Bank reiterated a Hold rating with a $40 price target.

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As 2015 is coming to a close, Oracle has underperformed the market, with the stock down 15% year to date. Over the past 52 weeks, the stock is down only 4%.

Shares of Oracle were trading up 1.3% at $38.28 in the noon hour Tuesday, with a consensus analyst price target of $44.15 and a 52-week trading range of $35.14 to $46.71.