Shares of Oracle (ORCL) are down $4.15, or 14%, at $25.02, having deepened their slide in the course of the morning session after the company last night missed fiscal Q2 expectations and forecast the current quarter below consensus estimates as well.
Oracle management on the conference call following the results said that some software orders had taken longer to close but that the company was putting in place measures to ameliorate that situation this quarter and going forward.
The gloomy report has hit all the major software vendors today. Salesforce.com (CRM), for example, shares are down $9.14, or almost 9%, at $95.19. And SAP AG (SAP) is off $3.72, or 7%, at $52.01.
Analysts, however, sounded skeptical that the shortfall was as simple as the company suggested.
Today, both bull and bear are inclined to think the weakness is a bit more than Oracle will fess up to, as price targets and estimates come down.
The stock received one downgrade I’m sorry, three downgrades, that I can see, from Societe Generale’s Richard Nguyen, who lowered his rating from Buy to Hold; one from CLSA Asia-Pacific Markets‘s Ed Maguire, who cut from Buy to Underperform; and one from�Canaccord Genuity’s Richard Davis, who cut his rating to Hold from Buy, and cut his price target to $28 from a prior $38.
Given the shocking nature of the shortfall for such a predictable company, Davis thinks the stock will trade sideways “for the next two to three quarters.”
Davis thinks some of this is Oracle’s own fault, writing, “Our view is more nuanced; ORCL missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications. We expect Oracle to catch up, but it will be through some R&D and a lot of M&A.” Davis advises buying Salesforce.com in bulk on any shortfall in that stock.
CLSA’s Maguire is inclined to assume Oracle is doing it’s best, but he sees the circumstances stacked against the company, writing “Customers are delaying commitments due to uncertainty driven by a combination of factors [...] we expect negative bookings and growth trends, lengthening decision cycles, FX headwinds and increasingly tough YoY compares to keep the shares range-bound in the near term.” He cut his rating to Underperform from Buy.
Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating on the stock and a $32 price target. Sherlund cut his fiscal 2012 estimate to $37.39 billion in revenue and $2.36 per share in profit, down from $39 billion and $2.44 per share. Sherlund notes that the slippage in deals is “typical of a macro[economi] slowdown,” but he also argues, “there were likely some execution issues at Oracle that may have made this worse for ORCL than other companies that have reported so far.” But the sell-off today probably “de-risk ORCL shares,” he thinks, and the continued strong growth in the company’s “Exadata” hardware could prove a “catalyst,” he thinks.
Joel Fishbein, Lazard Capital Markets: Reiterates a Buy rating and cuts his price target to $34 from $40. But he’s inclined to believe it’s nothing specific to Oracle, just the tough environment for software given global macroeconomic distress. Fishbein but his estimate to $37.34 billion in revenue this fiscal year and $2.35 per share in profit, down from $38.56 billion and $2.43 per share. “We are resetting our numbers and price target to account for elevated macro concerns, but continue to believe in multiple company specific drivers and with the stock trading at trough multiples, we maintain our BUY rating.” Fishbein writes that he is specifically looking forward to products such as the “SuperCluster,” the “Big Data appliance” and the “Exalytics” in the next couple of quarters.
Robert Breza, RBC Capital: Reiterates a Sector Perform rating and a $30 price target. He cut his 2012 estimate to $38.75 billion in revenue and $2.54 in EPS from a prior $40.76 billion and $2.59. Breza thinks the company’s promise of expanding profit margin may not be enough for some investors: “Management believes it has the products, expanded distribution and resources to give it confidence in the outlook and capitalize on the opportunity. We believe investors may take a more wait-and-see approach, however, and may look for more growth vs what seems to be more balanced growth with margin expansion.”
Mark Murphy, Piper Jaffray: Reiterates an Overweight rating on the stock, while cutting his price target to $33 from $34. Murphy speculates Oracle is a sign of the “new normal” in the software industry, in essence a period of slower growth. Be prepared for a lot of underwhelming results, he writes: “We expect continued unexciting growth over the next two quarters, with little in the way of catalysts on the immediate horizon but we believe Oracle is still a premier large cap software name and like it for its defensiveness.” Murphy cut his fiscal 2012 estimate to $37.46 billion in revenue and $2.35 per share in profit from a prior $38.44 billion and $2.40 a share.
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