Oracle Corp. (NYSE: ORCL) is scheduled to release its fiscal second-quarter financial results after the markets close on Monday. The consensus estimates call for $0.78 in earnings per share (EPS) and $9.52 billion in revenue. The same period of last year reportedly had $0.70 in EPS and $9.63 billion in revenue.
Back in September, while the enterprise software giant said along with earnings that it was adding another $12 billion to its share buyback plan, the stock traded lower due to revenue expectations. Now the company’s stock buyback plan simply may be too large. Maybe even way too large.
Following the most recent Oracle earnings report, Standard & Poor’s announced that it was revising its outlook on the stock to Negative from Stable, citing the aggressive share repurchases since the passage of U.S. tax reform.
S&P pointed out that Oracle doubled its repurchases in the first quarter to $10 billion from $5 billion in the previous quarter, and it showed that its cash position had declined materially, down to roughly $2 billion from $14 billion a year ago.
While S&P did leave an out for what would make the ratings agency revise its outlook back to Stable, the writing is on the wall in this report. The warning is that Oracle just became guilty of trying to return too much capital in too short a time. The dividend of $0.76 per share on annualized basis generates a yield of 1.46%, but it also implies that Oracle is paying out roughly 22.5% of its consensus earnings estimate (from Thomson Reuters) of $3.38 per share in the form of dividends.
Overall, Oracle has underperformed the broad markets, with its stock down about 7% in the past 52 weeks. In just the past six months, the stock is up less than 1%.
A few analysts weighed in on Oracle ahead of the results:
- Goldman Sachs has a Buy rating and a $55 price target.
- Nomura has a Buy rating with a $53 price target.
- Rosenblatt Securities has a Hold rating and a $51 target.
- KeyCorp has a Hold rating.
- Credit Suisse has a Buy rating with a $60 target price.
- Needham has a Hold rating.
Shares of Oracle were last seen at $46.59, in a 52-week range of $42.57 to $53.48. The consensus analyst price target is $52.90.
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