Oracle (ORCL) Q2 Earnings: What's in Store for the Stock?

Oracle Corporation ORCL is set to report second-quarter fiscal 2017 earnings results on Dec 15.

Last quarter, it had posted negative surprise of 7.55%. The company has registered an average negative earnings surprise of 0.91% in the past four quarters.

We also note that Oracle’s year-to-date gain of 10.9% is almost in line with the Zacks Computer Software industry return.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Oracle has been gaining ground on its cloud endeavors in recent times. The ongoing momentum at SaaS and PaaS provides signficant growth opportunity. The introduction of Generation2 IaaS data centers are expected to improve Oracle’s competitive prowess against Amazon Web Services (AWS) and will drive market share going ahead.

For the second quarter, total revenue is anticipated to grow in the range of 0% to 3%. SaaS and PaaS revenue is expected to grow in the range of 78% to 82%. Software and cloud revenue, including SaaS/PaaS and IaaS, new software license and software support is expected to grow 3% to 5%.

Oracle expects lower G&A expense for the to-be reported quarter. Earnings are anticipated to be between 59 cents and 62 cents. Higher interest expense is expected to hurt earnings by more than a penny in the quarter.

Nevertheless, we believe weak on-premise software revenues will continue to weigh on the results. Moreover, the ongoing transition from licensing to cloud will continue to impact financials in the near term.

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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Oracle currently has an Earnings ESP of -1.79% as the Most Accurate estimate of 55 cents is pegged lower than the Zacks Consensus Estimate of 56 cents.

Zacks Rank: Oracle has a Zacks Rank #3 that increases the predictive power of ESP. However, the company’s ESP of -1.79% makes surprise prediction difficult.

ORACLE CORP Price and EPS Surprise

ORACLE CORP Price and EPS Surprise | ORACLE CORP Quote

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

The following stocks can be considered at the moment, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Cognex Corp CGNX has an Earnings ESP of +3.45% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Seagate Technology STX has an Earnings ESP of +4.76% and a Zacks Rank #1.

Western Digital WDC has an Earnings ESP of +16.77% and a Zacks Rank #1.

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