Oracle Sees Opportunity in the Cloud
09/19/2017 2:59 am EST
Strong performance from the Cloud segment propelled Oracle (ORCL) to an outstanding fiscal Q1 2018. The software giant reported earnings per share of $0.62, versus the $0.60 estimate for the period, observes Chris Quigley, contributing editor of The Prudent Speculator.
ORCL had sales of $9.2 billion, compared to the $9.0 billion estimate. Total cloud and software revenue were up 8% year-over-year on a constant currency basis to $7.4 billion. ORCL also reported a 10% year-over-year increase in operating income to $3.8 billion with a 41% operating margin.
Although the stock initially rallied on the news as fiscal Q1 results beat expectations, somewhat soft guidance for the upcoming quarter sent shares tumbling more than 7%.
Co-CEO Mark Hurd said, “A couple of predictions, I expect Q2 cloud booking growth to be strong or stronger than our Q1 growth rate. Our cloud bookings, we're executing well on a very big and growing pipeline. We expect the cloud FY 2018 full-year cloud booking growth to be quite strong. Revenue growth now at an annualized rate of $6 billion, or a growth rate of 51%, and we are the fastest growing cloud company at scale.
We remain encouraged by the substantial momentum gains in the cloud business and we continue to believe that ORCL has a quality leadership team that will drive top-line growth to the bottom line.
We think that the sell-off creates an opportunity to purchase an undervalued IT firm with solid fundamentals, a substantial net cash position and strong free cash flow generation.
With shares having retreated from the multi-year highs, we think that the forward P/E ratio of 16.2 times remains on the reasonable end of the spectrum. We actually chose to raise our Target Price of $60. ORCL currently yields 1.6%.