Oracle (ORCL) Stock Dips 3% on EPS Miss, Piper Sandler Downgrades to Underweight, Other Analysts More Positive
Shares of Oracle (NYSE: ORCL) are down nearly 3% in premarket trading Friday after the company reported worse-than-expected adjusted EPS for the third quarter.
Oracle posted Q3 adjusted EPS of $1.13, down from $1.16 in the year-ago period and below the consensus estimates of $1.18. Adjusted revenue came in at $10.51 billion, up 4.2% YoY and in line with analyst expectations of $10.51 billion.
Adjusted cloud services and support revenue totaled $7.64 billion, up 5.3% YoY and above the estimated $7.61 billion. Cloud license and on-premise license revenue stood at $1.29 billion in the period, up 1% YoY and short of the analyst consensus of $1.34 billion.
Hardware revenue was reported at $798 million, down 2.7% YoY and above the estimated $774.5 million. Service revenue stood at $789 million, up 7.1% YoY and beating the consensus estimates of $780.2 million.
Oracle reported a Q3 operating income of $4.81 billion, up 0.6% YoY and topping the analyst consensus of $4.67 billion. Adjusted operating margin was 46% in the quarter, down from 47% in the year-ago quarter and above the estimated 44.6%.
Applications cloud services and license support revenue stood at $3.19 billion, up 8% YoY, and slightly below the $3.21 billion consensus. Infrastructure cloud services and license support revenue was reported at $4.45 billion, up 3.5% YoY and above the expected $4.42 billion.
Oracle said Q3 EPS were lower by $0.05 due to a drop in share price in gene sequencing business Oxford Nanopore and an operating loss at Ampere. The software company said it is confident that its investments in Ampere and Oxford Nanopore will yield strong returns in the future.
Piper Sandler analyst Brent Bracelin downgraded to Underweight from Neutral with a new price target of $70.00 per share, down from the prior $100.00. He believes double-digit growth is unlikely.
“We find it difficult to see how a cloud shift can sustain a clear path to double-digit organic growth next year considering more than 70% of revenue is still tied to the traditional Oracle product categories where revenue declined by 1.6% y/y this quarter. Few companies have executed a cloud model transition without a hiccup, and the drag on FCF margins is well documented and could also temper multiple expansion going forward,” Bracelin wrote in a report.
On the other hand, Wolfe Research analyst Alex Zukin saw “a very solid quarter.” The analyst maintained the Peer Perform rating and lowered PT to $83 based on peer multiple contraction.
“ORCL continues to show top line growth and strong margins with the potential to be a double digit top and bottom line grower,” Zukin commented in a note to clients.
Cowen analyst Derrick Wood raised the price target to $107.00 per share from the prior $100.00.
“We see this as a pivotal qtr that should precipitate a major re-rate in the stock. At 14x FY23E EPS, valuations are not pricing in such an improved growth profile. While we expect there to be many skeptics, w/ the inflecting growth in IaaS the last couple of qtrs & the return to positive license growth (driven by D/B), the model mechanics make sense to us & we think investors should have confidence in this growth inflection, led by growing share gains in IaaS and ERP,” Wood wrote in a client note.
By Senad Karaahmetovic | [email protected]