Ditch Global Software Giant Oracle? Top Analysts Say Not Yet

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Includes: ORCL
by: TipRanks

Summary

Oracle stock has dipped 3% year-to-date.

Wall Street analysts are still rating ORCL a ‘Buy.’.

Should you buy on weakness?

With a monster $192 plus billion market cap, Oracle Corporation (NYSE:ORCL) is a software force to be reckoned with in the world. The empire boasts 430,000 customers spanning 175 countries. That said, it’s not been Oracle’s strongest year.

Oracle is underperforming- the stock has declined against the S&P market’s year-to-date nearly 16% rise. The company’s 2018 market performance edges right past the S&P’s 5% growth by not even a full percent higher. Just last month, Oracle investors took a bitter pill to swallow. Oracle closed out its fiscal year with fourth quarter earnings that left the Street underwhelmed, to say the least. Market experts have been left wondering: is Oracle’s transformation to a cloud-based empire still a go?

The short answer: yes. Here, we use TipRanks data to determine if the risk/reward is compelling for this tech giant. Are Wall Street’s best analysts recommending investors stick through Oracle’s lackluster period? Let’s explore.

While caution is certainly racing through the Street, we still have found healthy bullish sentiment backing the software giant. It’s not that bulls don’t acknowledge short-term volatility at play here; but long-term, valuation is still enticing when sizing up fundamentals. So says top analyst Raimo Lenschow (Profile & Recommendations) of Barclays, even as he understands this stock is stuck to “remain in the penalty box in the near to mid-term.” Investors are taking in structural shifts in Oracle’s reporting and will want to see further metrics on the company. All the same, Lenschow believes shares can soar 19% higher to $58. The analyst rates ORCL an Overweight. Notably, Lenschow’s track record speaks highly, as the analyst is ranked #46 out of over 4,800 analysts covered on TipRanks. Lenschow’s bullish ratings on Oracle have paid off: he makes an average of 11.5% in profits on the stock.

Another top analyst liking Oracle’s odds Jefferies’ John Difucci (Profile & Recommendations). True, the bull anticipates apprehension will get stirred up in the absence of cloud revenue disclosure. Difucci is not expecting Oracle shares to “get the benefit of the doubt” for now- not before sales growth sustainability means continuous gains in free cash flow. However, the analyst is overall positive on the stock’s prospects: the giant has “turned a corner and will progress in the right direction from here.” The analyst rates the stock a Buy with a $61 price target, marking 26% upside potential in store for Oracle. TipRanks showcases the analyst has earned a #12 ranking on Wall Street- and a 95% success rate when it comes to making profitable recommendations on Oracle.

Credit Suisse analyst Brad Zelnick (Profile & Recommendations) stands as another analyst in Oracle’s bullish camp, rating the stock an Outperform even though some parts of the business are “turning cloud.” The bull understands Oracle confronts business challenges. Oracle underperformed in its fourth fiscal quarter on deferred revenue and has put a halt to posting its cloud revenues by SaaS (software as a service), IaaS (infrastructure as a service), and PaaS (platform as a service) segments. This puts Oracle’s transition to cloud in a hot seat for lack of visibility in reporting cloud services growth. That said, this tech giant stands strong in database and cloud markets, exhibiting an “underappreciated durability,” says Zelnick. The analyst maintains an Outperform rating on ORCL stock with a $60 price target, marking nearly 24% upside potential.

One analyst is unfazed by the company’s cloud trajectory. MUFG’s Stephen Bersey (Profile & Recommendations) believes the business is looking robust and likewise commends 9% database license growth as “impressive.” Consider that Oracle’s new “bring your own license option has outperformed expectations.” Bersey’s prediction: look for the enterprise software empire to gain advantage from scale on the back of IaaS investments beginning to “bear fruit.”

Mark Moerdler (Profile & Recommendations) of Bernstein is bullish on Oracle, albeit less upbeat on the narrative. Moerdler sees a cloud transition that is still “progressing” and will prove to be “positive for results.” Yet, in a nutshell, “we believe that this change frankly does not help investors or the story,” acknowledges the analyst. As software shifts over to the cloud and with no “explicit, easy to understand, non-changing data” currently in sight, “it is going to be difficult for investors to correctly appraise the more valuable recurring Cloud businesses.” Even amid this rougher turn in Oracle’s story, Moerdler rates ORCL an Outperform with a $63 price target. In other words, even if the analyst raises an eyebrow, he nonetheless spotlights close to 30% in upside potential for the stock.

Ultimately, we can see that the stock has earned a Moderate Buy analyst consensus rating. See what top analysts are saying now about Oracle’s market opportunity. In the last three months, Oracle has received 10 buy ratings and 9 hold ratings. However, the 12-month average price target tells a more upbeat story, with expectations pointing over to the bulls: the $55.00 price target calls for 13% return potential ahead. Bottom line: there is a bullish case to be made for sticking by Oracle during its tricky shift to cloud- and reaping profits down the line.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.