Will Q4 Mark an End to Oracle's (ORCL) Earnings Beat Streak?

Oracle Corporation ORCL is set to report fiscal fourth-quarter 2018 results on Jun 19. Notably, the company has beaten estimates in the trailing four quarters, recording an average positive surprise of 8.49%.

In the last reported quarter, the company delivered modest third-quarter fiscal 2018 results. Non-GAAP earnings of 83 cents per share comfortably beat the Zacks Consensus Estimate of 72 cents. However, revenues of $9.776 billion came almost in line with the Zacks Consensus Estimate figure of $9.771 billion. This represented 6% year-over-year growth in revenues.

Expect What?

The current Zacks Consensus Estimate for the quarter under review is pegged at 94 cents, up 5.6% year over year. The earnings estimates have remained stable in the last 30 days. Further, the Zacks Consensus Estimate for revenues is pegged at $11.2 billion, up roughly 2.3% from the year-ago quarter.

Oracle underperformed the industry in the past year. While the stock gained just 3.4%, the industry recorded growth of 38.4%.

Let's see how things are shaping up prior to this announcement.

Factors Likely to Impact Q4 Results

Soft outlook for the cloud business remains an overhang for Oracle. Cloud revenues including Software as a service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) are expected to grow between 19% and 23% (17-21% in constant currency), much lower than 32% (29% in constant currency)  reported in the last quarter.

Further, higher investments on IaaS platform will affect gross margin expansion in the near term.

Oracle recently announced the accessibility of its next-generation Oracle Cloud Platform services. The move is aimed at providing required programmability, performance and flexibility for rapid service deployment in the cloud economy. We believe, the company’s cloud platform will be one of its key revenue generating businesses in the to-be-reported quarter.

The latest addition to its cloud platforms reflects Oracle’s focus on expanding cloud computing product portfolio inorganically. The strategy will enable the company to scale up its cloud operations much faster. Despite expanding its foothold in the cloud space, the presence of already established players like Amazon AMZN and Microsoft in both the PaaS and IaaS may remain a potential headwind.

Going forward, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is a key catalyst.

Oracle is gaining traction in its cloud business as evident from its third-quarter fiscal 2018 performance, which benefited from the ongoing cloud-based momentum. Total cloud revenues (16% of total revenues compared with 13% in the year-ago quarter) advanced 32% to $1.57 billion.

Moreover, total cloud and on-premise software revenues increased 8% to $7.98 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.

The Zacks Consensus Estimate for total cloud revenues is currently pegged at $1.71 billion, while total software revenues are currently pegged at $9.27 billion, up 9.8%.

Earnings Whispers

Our proven model does not conclusively show that Oracleis likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Oracle’s Earnings ESP is -0.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Oracle currently carries a Zacks Rank #4 (Sell) which when combined with earnings ESP of -0.35% makes surprise prediction difficult. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

FedEx Corporation FDX has an Earnings ESP of +0.32% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darden Restaurants, Inc. DRI has an Earnings ESP of +0.20% and a Zacks Rank #3.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Oracle Corporation (ORCL) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.