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Oracle (ORCL) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Oracle ORCL is slated to release fourth-quarter fiscal 2019 results on Jun 19.

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 3.97%.

Past-Quarter Performance

In the last reported quarter, Oracle delivered non-GAAP earnings of 87 cents per share, which surpassed the Zacks Consensus Estimate of 84 cents. Revenues of $9.618 billion marginally outpaced the Zacks Consensus Estimate of $9.608 billion.

Earnings increased approximately 8% from the year-ago quarter (up 12% in cc). Further, revenues decreased 1% year over year but increased 3% at cc.

What to Expect in Q4?

For the fourth quarter of 2019, total revenues are anticipated to grow 1-3% at cc. Non-GAAP earnings are anticipated to be $1.05-$1.09 per share for the fourth quarter. While non-GAAP earnings are expected to be $1.08-$1.12 per share at cc.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.07, unchanged for the last 30 days. This indicates an improvement of about 8.1% from year-ago quarter. For quarterly sales, the consensus mark is pegged at $10.96 billion, suggesting a decline of 2.7% from the year-ago reported quarter.

In the past year, the company’s shares have gained 14.5%, underperforming the industry’s growth of 22.6%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Oracle is benefiting from increasing adoption of its product portfolio and synergies from strategic buyouts. Moreover, ongoing cloud-based momentum bodes well for the company’s top line.

Total cloud services and license support revenues (70% of total revenues) for the last reported quarter improved 1% (4% in constant currency) to $6.66 billion. Further, the next-generation autonomous database launched by Oracle is a key catalyst. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”) and is expected to generate incremental revenues going ahead. This initiative will also aid the company in the upcoming quarterly results.

Oracle recently made a slew of announcements focused on strengthening its software portfolio with robust machine learning (ML) and AI capabilities. The company also extended functionality of its Human Capital Management (HCM) cloud platform to provide engaging employee and manager experience, with smart Digital Assistants and enhanced HR Help Desk.

The company’s DataFox buyout is enabling it to improve cloud-based data engine with AI capabilities. With DataFox, the company is anticipated to strengthen its Customer Experience (CX) cloud offering. These initiatives will aid the fourth-quarter results.

Robust adoption of its product portfolio and ongoing cloud-based momentum bode well for the company’s top line. Moreover, synergies from acquisitions of Moat, Crosswise, AddThis, BlueKai, Datalogix, and Grapeshot have fortified Oracle’s software platforms. This incremental adoption of Oracle’s services is anticipated to aid financial performance of the company, which in turn will aid the to-be-reported quarter’s results and ahead.

Further, Oracle is leaving no stone unturned to improve retail portfolio to include more AI-engineered offerings. The company recently rolled out Size Profile Science offering to assist retailers in predicting sales and improve inventory management accordingly. The solution is part of its latest Oracle Retail Science Platform Cloud Service.

Oracle’s growing clout in retail domain, primarily in digital commerce reinforces the company’s growth prospects. We believe advanced features of the latest offering will boost adoption, consequently aiding the top line in the upcoming quarterly results and days ahead.

Notably, the company updated NetSuite with latest analytics and cloud capabilities across digital commerce, finance, HR, supply chain, and marketing domains. We believe that enhancing the functionalities of NetSuite with cloud-based capabilities position the solutions well to sustain growing clout in the markets served by the company. Moreover, focus on customizing NetSuite to comply with local needs will boost its global market reach. This will aid the top line in the soon-to-be reported quarter.

However, stiff competition in the cloud is expected to hurt margins and will make revenue growth difficult, going forward. Further, large acquisitions can negatively impact the company’s balance sheet in the form of a high level of goodwill and intangible assets. Further, lawsuits and currency volatility, owing to its transition from licensing to cloud, are likely to affect the company’s upcoming quarterly results.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Oracle has an Earnings ESP of -1.24% and a Zacks Rank #3.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

The Progressive Corporation PGR has an Earnings ESP of +5.13% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Prologis, Inc. PLD has an Earnings ESP of +0.52% and a Zacks Rank #3.

AT&T Inc. T has an Earnings ESP of +1.64% and a Zacks Rank #3.

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