Application software provider, Oracle Corp. ORCL is set to report fiscal second quarter 2016 results on Dec 16. Last quarter, it posted a 2.08% positive surprise. The company has posted an average negative earnings surprise of 1.53% over the past four quarters. Let’s see how things are shaping up for this announcement.
Factors to Consider
We believe strong growth prospects in SaaS, PaaS and Big Data are encouraging. Speedy adoption of cloud suites will drive incremental top-line growth going forward.
However, the company’s continuing transition from licensing, where revenues are recognized upfront, to a cloud subscription model where it is realized over the years, will hurt its top line in the near term. In addition, strengthening of the U.S. dollar will continue to weigh on its financials. Also, stiff competition from the likes of Google, IBM IBM and Amazon.com, Inc’s AMZN AWS remains an added concern.
For second quarter fiscal 2016, total revenue growth is expected in the range of (2%) to 1%. Non-GAAP earnings per share are expected in the 63 cents to 66 cents. SaaS and PaaS revenue is expected to grow between 36% and 40%. Software and Cloud revenues are expected to remain flat to up 2%. In fiscal 2016, Oracle estimates SaaS and PaaS revenue growth rate to be around 50% in constant currency.
Earnings Whispers
Our proven model does not conclusively show that Oracle is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Zacks ESP: Oracle currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 57 cents per share.
Zacks Rank: Oracle has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stock to Consider
The following stock can be considered at the moment as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release:
ConAgra Foods, Inc. CAG with an earnings ESP of +3.39% and a Zacks Rank #2 (Buy).
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