Analysts Trim Forecasts Ahead Of Oracle Earnings
The analysts are still on board the Oracle (NASDAQ: ORCL) bandwagon but their sentient was been waning and may fall further in the wake of the Q3 earnings report. The 25 analysis rating the stock has yet to come out with commentary but the pre-release action is telling. The three most recent commentaries issued the day before earnings were released, included two price target reductions to below the consensus estimate and we see more on the way.
As it is now, the Pricetargets.com consensus rating is a firm Hold leaning toward Buy with a slight downtrend in sentiment. The analysts were rating Oracle a weak Buy last year and a strong Hold as recently as 90 days ago. As for the consensus price target, it's up more than double over the past year but reached a peak following the Q2 results and is heading lower in our opinion.
And if the analyst's sentiment isn’t enough to give you pause, the institutions are shedding Oracle, and in a big way. The institutions have been net sellers for the last 5 quarters and that trend is intact in Q1 as well. The institutions have sold more than 4.5% of the market cap (with shares at $76.50) over the last 12 months with a full 0.5% in the first 9 weeks of 2022. That’s not a headwind we want to fight.
Oracle Casts Shadow On S&P 500 Calendar Q1 Earnings
Oracle reported for the fiscal Q3 period, technically the calendar Q1 period of 2022, and the results may have far-reaching implications for the market. While the top-line results are better than expected the outperformance is weak relative to trends and margins are lagging. The implication for the S&P 500 during the Q1 reporting season is that earnings may not just come in weak relative to the consensus but below the consensus. In that paradigm, the outlook for earnings in the back half of the year will take another hit and add another brick to the load of worry hanging over the market today. The good news is that Oracle’s cloud transition continues to gain momentum and points to dividend health, the potential for dividend increases, and share buybacks.
So, Oracle reported $10.51 billion in net consolidated revenue for a gain of 4.2% over last year and a Q3 record. The revenue is also beat the consensus but by a mere 0.02% so nothing to brag about. The strength is due to a 24% increase in cloud business with Fusion ERP up 33% and Netsuite up 27%. Moving down to the income, margins came under pressure as well and lagged earnings in both the GAAP and adjusted comparisons. The company operating income fell -1% GAAP and grew 1% adjusted compared to the 4.2% gain in revenue and suggest either weakness in future earnings or higher prices for businesses using the products.
The Technical Outlook: Oracle May Break Trend
Shares of Oracle have been in a correction since hitting a peak in late December and now is in danger of breaking the trend. Price action hit the trend line a few weeks before the earnings were released and bounced but now, in the wake of the report, early premarket action is below the trend line. If the market is unable to establish support at this level the trend will be broken. In that paradigm, price action by another $10 to $12 or another 13% of downside.
