Take Profits on Oracle Corporation (ORCL) Stock Before Q3 Earnings

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Oracle Corporation (NYSE:ORCL) has made a nice move to the upside so far in 2017, with ORCL stock up 10% to beat the broader market.

Oracle Corporation (ORCL) Q3 Earnings Preview

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Then again, that doesn’t make Oracle stand out too much. Many mega techs — Microsoft Corporation (NASDAQ:MSFT), SAP SE (ADR) (NYSE:SAP) and Cisco Systems, Inc. (NASDAQ:CSCO) — have logged similar gains.

So, does Oracle have anything special in the chamber?

Well, we should get a better idea on Wednesday, March 15, after the bell when Oracle earnings for the third quarter come out into the light.

Oracle Earnings Preview

Wall Street expects Oracle to report revenue growth of 2.8% to $9.26 billion for its fiscal third quarter. Meanwhile, ORCL earnings should fall from 64 cents to 62 cents.

Though how much those expectations matter is up in the air, considering Oracle has missed top-line expectations in eight of the past 10 quarters.

Oracle has been making a big push toward the cloud, though it’s certainly late to the game. Cloud computing has been around since the late 1990s, and much of the growth has left Oracle behind. Instead, it has been snapped up by the likes of Salesforce.com, Inc. (NYSE:CRM).

Interestingly enough, the risk to ORCL stock is not necessarily the technology required, but the change in the core business model. Oracle is switching from upfront licensing fees — which can be hefty and cost-prohibitive to many companies — to lower subscription payments. It’s a transition that can be successful, but can also take time, as Adobe Systems Incorporated (NASDAQ:ADBE) can attest.

The good news for Oracle is that the company is getting traction with its cloud efforts. From its previous quarter:

  • Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were $878 million, up a sizzling 81%.
  • Total Cloud Revenues, including infrastructure as a service (IaaS), were $1.1 billion, up 62%.
  • ORCL is No. 1 in SaaS cloud applications sales to customers with over 1,000 employee, based on a report from IDC.
  • Oh, and with the $9.3 billion acquisition of NetSuite, ORCL should become the No. 1 cloud applications service provider for companies with less than 1,000 employees.

It’s important to note that ORCL has many strong assets to leverage, too.

Oracle boasts a massive global customer base, strong ongoing cash flows and a large portfolio of mission-critical technologies, such as for databases, middleware and enterprise resource planning (ERP).

What’s more, Oracle has a long history with successful M&A, and that includes in its cloud-building efforts. Some of its deals include the acquisition of Dyn, which monitors web activity to deal with cyberattacks and re-routing of traffic, as well as Opower (a cloud platform for the utility industry) and Textura (a cloud platform for construction).

How to Play ORCL Stock Before Earnings

And yet, caution — if not outright bearishness in the short-term — is warranted right now.

For one, the valuation on ORCL stock looks toppy at 20 times earnings. That’s generous for a company that’s growing at a snail’s pace. Even typically bullish Wall Street is shrugging at the stock, giving shares an average price target of $44 — a mere 5% upside from current levels.

Also, Oracle earnings tend to be choppy, thanks in large part to the transition to the cloud. It also doesn’t help that the market continues to get more and more competitive. For example, Alphabet Inc (NASDAQ:GOOGL) is making a big push and has landed marquee deals, such as with the fast-growing Snap Inc (NYSE:SNAP).

Concerning ORCL stock: At the very least, don’t add to your positions, and don’t buy it if you don’t already hold — allow the cloud strategy to play out before making a move.

And if you’re sitting on decent profits, now might be the time to collect them.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A BundleFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/oracle-corporation-orcl-stock-q3-earnings-preview/.

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