D.A. Davidson Sees Oracle Q4 Earnings Below Consensus

Oracle Corporation (NYSE: ORCL) is expected to report its fourth-quarter numbers on June 16 after the market close, and D.A. Davidson expects the results to be below consensus.

Projections For Q4

Analyst Jack Andrews expects non-GAAP EPS of $0.80, compared to the Street's $0.82 and the company guidance of $0.82–$0.85. D.A. Davidson's expectation reflects a $0.02 headwind.

The analyst projects revenue to decline 3.4 percent year-over-year to $10.348 billion, compared to consensus calling for a 2.2 percent decline to $10.471 billion, and implied guidance of about $10.288 billion–$10.603 billion.

Related Link: Morgan Stanley On Oracle: "Hurdling A Low Headline Bar For Q4"

Since the business software major is transitioning to the Cloud, the market will monitor closely the Cloud revenues and the impact of Cloud on the license sales. Andrews said Oracle's new software licenses would continue to be pressured by its accelerating shift to Cloud.

"Our research indicates that ORCL likely sold a significant amount of SaaS and PaaS business in the quarter, and may in fact be suffering from a cloud capacity shortage. As a result, while we are close to Street estimates on most line items, we are forecasting a 14 percent YoY decline in new software licenses, despite 4Q seasonal tailwinds," Andrews wrote in a note.

The analyst expects total Cloud revenue to rise 42 percent year-over-year to $822 million, driven by 58 percent Cloud SaaS and PaaS growth to $662 million due to the recent acquisitions.

"While we believe ORCL is historically conservative in recognizing revenue from acquisitions, we note that consensus revenue estimates for Textura and Opower for ORCL's FY17 are roughly $290 million," Andrews highlighted.

Rating And Justification Recap

Andrews reiterated his Buy rating and $52 price target on Oracle shares saying the stock is suitable for long-term investors despite acknowledging that the benefits from the Cloud transition is likely to unfold over the course of several years.

At the time of writing, share of Oracle were down 0.17 percent to $38.38.