ORCL Stock Rises as Company Beats
Oracle Corporation (NYSE:ORCL) stock is an important benchmark in information technology. It’s the kind of position you can follow for clues to institutional spending. The company is an indicator for government and large corporate expenditures on information technology and database management.
Oracle Corporation always reports early, just before a calendar quarter closes, and acts kind of like a canary in the coalmine for an earnings season.
The stock went up after the company announced its 2016 fiscal third-quarter results (its 3Q16 ended February 29, 2016), which beat the Street on the bottom line.
What the market was really looking for was strength in the company’s cloud software business and Oracle Corporation delivered with a 40% comparable gain in total U.S. dollar cloud-based quarterly revenue.
Naturally, on a global reporting basis, relative strength in the U.S. dollar produced a total third-quarter sales drop of about three percent to $9.0 billion. Constant currency quarterly sales would have produced a one-percent comparable gain.
This is very much the same story we keep getting from large, global-operating corporations that not only have slow-growth business conditions to deal with, but also currency translation.
But, this is a known operating attribute for the Street. What’s enough for institutional investors to keep buying no-growth companies is a combination of bottom-line earnings growth, dividends, and share repurchases to pay for them.
Oracle stock’s long-term chart is featured below:
Chart courtesy of www.StockCharts.com
I would say that the current market environment—where share prices of big companies are ticking higher even if they can’t generate real top-line comparable sales growth—isn’t a reflection of monetary policy (at least not anymore), but just the reality that investors have to deal with.
There’s plenty of cash to go around among institutional investors and on corporate balance sheets.
This market environment offers more of the same since the beginning of 2013: little to no real economic growth among multinationals, solid earnings-per-share growth due to corporate downsizing and share repurchases, along with modest dividend growth.
It’s not really the makings of a rising broader market environment and this is well evidenced by the flat equity market we’ve been experiencing since the beginning of 2015.
The Bottom Line on ORCL Stock
Oracle Corporation announced that it plans to buy back another $10.0 billion worth of its own shares. This will likely be enough to keep investors interested.
Oracle’s transition to cloud-based software services is working, but virtually all of the company’s traditional businesses, like hardware and software, revenues are flat to down on a comparative basis. So, the company’s information technology business isn’t burgeoning, but it’s enough to keep investors with the position.
These truly are unique times for companies and equity investors. All of it, including the slow unraveling of unprecedented monetary stimulus, highlights the need to be focused on risk, not potential return, with stocks.
Oracle’s numbers make the case for a continued trendless market this year.
Corporate reporting still doesn’t support a rising share price environment (this already happened). Therefore, a strong adherence to investment risk is top priority.