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Sunday, June 25, 2017

Oracle Earnings Rebound to Second Best Ever!

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Oracle reported QE May 2017 financial results on June 21


Summary
    • Oracle reported an exceptional earnings beat of $0.89 EPS, a YoY increase of +10%.
    • Total revenues were a strong $10.89 billion, a YoY increase of +3%.
    • ORCL stock has been in an long-term uptrend and is about +33% YTD 2017 and +25% for the past 12 months.

Has Oracle Reversed the Financial Downtrend with Cloud Hyper-Growth?

Oracle (ORCL) earnings per share for the quarter ending May 31, 2017 were the second best ever. CEOs Mark Hurd and Safra Catz reported a large surprise earnings beat with an exceptional quarter including a YoY increase in Non-GAAP earnings per share (+10%) and a YoY increase in revenues (+3%). The analysts had estimated -3.7% and -1.4% while the Oracle management outlook was -1.2% and +0.5%, respectively.

“Our fourth quarter results were very strong as revenue growth and earnings per share both substantially exceeded the high end of guidance. We continue to experience rapid adoption of the Oracle Cloud led by the 75% growth in our SaaS business in Q4. This cloud hyper-growth is expanding our operating margins, and we expect earnings per share growth to accelerate in fiscal 2018.”, said CFO Safra Catz.

I continue to consider ORCL a Hold and but now have a Positive outlook on Oracle’s future financial performance. This was a decisive reversal of the financial downtrend, but the QE May 2014 remains the financial pinnacle to be exceeded.

Earnings per Share

The Non-GAAP earnings per share of $0.89 was a beat over the $0.78 projected by analysts and was well above the prior four-quarter average of $0.69. This was the second highest earnings per share ever recorded.


What is the Oracle Management Guidance for next quarter?
Estimated QE August 2017 Earnings per Share (Non-GAAP):
  1. ORCL Average Estimate: $0.60
  2. Prior Year $0.55 = +9% YoY
  3. Prior Quarter $0.89 = -33% QoQ


Earnings per Share Year Over Year Growth Rate (%)

The Non-GAAP EPS was an impressive +9.88% increase year over year, from $0.81 to $0.89. This was the largest increase since the QE August 2013 (+11.32%)! Oracle management is projecting a year over year growth rate of +9.09% for next QE August 2017, which would be a slight slowing. This trend is still a vast improvement over the downtrend from the QE November 2014 through the QE November 2016.



Revenues

Total Non-GAAP Revenues were an encouraging, and annual cyclical peak, of $10.94 billion and a beat over the $10.45 billion projected by the analysts. Prior year QE May 2016 was $10.60 billion.



What is the Oracle Management Guidance for next quarter?
Estimated QE August 2017 Total Revenues (Non-GAAP):
  1. ORCL Average Estimate: $9.03B
  2. Prior Year $8.60B = +5% YoY
  3. Prior Quarter $10.89B = -17% QoQ


Conclusion

Financial Performance: Non-GAAP and GAAP financial performance had slowed from both a cyclical peak and a pinnacle for the QE May 2014. At that time, Non-GAAP EPS was $0.92 and total revenues were $11.33 billion. By comparison, this QE May 2017 was $0.89 and $10.89 billion. This latest quarter, and the management estimates for next quarter, indicate financial performance is improving.

Financial Position: Capital and working capital are adequate. Total assets of $135 billion is a record high. The current assets to total assets ratio is 53%, so there is liquidity. The total debt ratio, both short-term and long-term, is a very high at 43% of total assets and has been at this higher level for a couple of years.

Pivot to the Cloud: Co-CEO Safra Catz has clearly indicated that the cloud is the future for Oracle. She also stated in the Q3 2017 earnings call, “Next year I expect our cloud revenue will be larger than our new software licensing revenue. The investments we’ve made to transition our business to the cloud has been important to ensure Oracle remains a technology leader and we’re now beginning to see the benefits in our results.”

Earnings Returned to Shareholders: Oracle is paying a record-high dividend of $0.19. At a selected benchmark $50.00 stock price this is a 1.52% annualized yield. Oracle repurchased $494 million of common stock in the QE May 2017. These repurchases combined with the $787M dividends equal $1.281B earnings returned to shareholders.

Stock Price: ORCL stock has been in a long-term upward trend. ORCL has price support from the dividends paid, dividend yield, stock repurchases, and institutional buyers.

Stock Evaluation and Opinion: As an intermediate-term to long-term investor, and from that perspective, I continue to consider Oracle stock to be a Hold, compared to Buy or Sell. I am now Positive on Oracle stock, compared to previously being Neutral. Long-term will hopefully have better prospects, but that has not been completely proven yet. The quarters ending in May are the annual cyclical peaks for top line revenues and bottom line earning per share. The pinnacle of these financial performance indicators was reached for the QE May 2014 and has not been regained since.

(Graphs created by author using data from Oracle. Time frames generally are intermediate-term = 1-3 months and long-term = 3+ months for purposes of the above discussion.)

About Oracle

Oracle offers a comprehensive and fully integrated stack of cloud applications and platform services. For more information about Oracle (NYSE: ORCL), visit www.oracle.com or contact Investor Relations at investor_us@oracle.com or (650) 506-4073.


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