Oracle Corp. (ORCL) is climbing quickly after reporting strong earnings on Wednesday evening, but analysts still advise that the stock's longer-term trajectory is up in the air.
The shares ran almost 9% near midday, building on a strong year that has taken the stock more than 20% higher to a record level. The move on the day was aided by a quarterly report that assuaged some late-cycle fears on software spending as strong cloud license results overshadowed continued deceleration of hardware sales.
CEO Safra Catz added that investors should expect stronger growth from this level as well, exceeding analysts' forward forecasts on earnings per share and revenue.
"This past year, we grew 3%. And for fiscal year 2020, I expect total revenue will grow faster than last year," he told analysts on Wednesday evening. "We will once again report double digit EPS growth."
Still, analysts are taking the "show me" approach to the stock as an increasing crowd of cloud competitors fight for customers in the strongest aspects of Oracle's growth story. For applications, key names would include Salesforce (CRM) and Adobe (ADBE) , while for cloud infrastructure Amazon (AMZN) , Alphabet (GOOGL) , IBM (IBM) , and Microsoft (MSFT) remain the elephants in the room.
"After close to five years of declines, robust database business yielding a rebound to 15% license growth likely reopens the debate on Oracle's growth potential," Morgan Stanley analyst Keith Weiss wrote to clients. "However, given continued weak survey results, we find it too soon to call one quarter a trend."
As such, Weiss remained "Equal Weight" rated on shares with a conservative price target set at $59 per share, just above the current trading level.
"Although Oracle has a number of growing, secular businesses, there are also some areas like Dataas- a-Service (DaaS), hardware and services that are offsetting the faster growing parts," he reasoned. "We think Services may be close to bottoming out, but within Hardware and DaaS we could continue to see further declines, pressuring the overall revenue growth trajectory of the company."
According to FactSet, this "Hold" rating is the consensus among Morgan Stanley's peer firms that are not yet ready to back a rally in shares.
"The numbers were better than feared but with just ~3% growth and a fourth quarter lift from ASC606 accounting, it isn't enough to have us move to a more bullish stance," Deutsche Bank analyst Karl Keirstead said, falling into that consensus camp. "At 15x FY20e FCF and 14x non-GAAP EPS, we conclude that Oracle shares still are reasonably priced but not cheap."
He said that a continued buyback program, which Catz noted notched in at $6 billion in the first quarter and $36 billion over the last 12 months, could carry the shares higher somewhat artificially. However, the potential is not enough to change his outlook on the company and its shares overall, especially as ORCL roars to all-time highs.
The debate will take time to develop, but at these early innings, analysts are not ready to call the stock a winner.
