Oracle Stock Seen Rising 11% Despite Red Flags

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Oracle Corp.'s (ORCL) stock is up only 2.5% in 2018, trailing the S&P 500's rise of more than 8%. Shares of the software company fell hard in mid-June after issuing weak guidance for the coming fiscal first quarter of 2019. But still, analysts see Oracle rising by 11% from its current price of $48.45.

The bullish outlook from analysts is not the only relevant data point. Oracle's stock, since hitting a low in mid-June around $42.50, has been grinding higher. The technical chart also suggests that the stock can continue to rise in the coming months.

ORCL data by YCharts

An 11% Gain

Analysts are currently looking for Oracle to rise to an average price target of $53.70. But that price target has fallen since mid-June from $56. That was when the company issued fiscal first-quarter results below expectations.

ORCL Price Target data by YCharts

Falling Estimates

Despite the bullish price target, analysts’ forecasts have been falling in recent weeks. Earnings for the first quarter are forecast to grow by 10% to $0.68 per share, which is down from a previous forecast of $0.71. Additionally, revenue forecasts have dropped and are estimated to be flat versus last year at $9.27 billion, down from the previous estimate of $9.53 billion.

Full-year estimates have been dropping, too. Estimates for 2019 are expected to climb by more than 7% to $3.34, but that is down from a prior forecast of $3.38. The same is true for 2019 and 2020, which have dropped to $3.61 and $3.85 from $3.64 and $3.87 per share.

Revenue estimates are expected to rise by less than 2% in 2019 to $40.6 billion, down from a prior estimate of $40.9 billion. But the outlook for 2019 and 2020 is even worse, with revenue seen climbing to $42.06 billion and $43.2 billion, respectively, down from prior forecasts of $42.5 billion and $45.5 billion.

Bullish Technical Chart

Despite the revenue and earnings reductions, Oracle's stock continues to grind its way higher. The stock has been rising along an uptrend and is currently resting on technical support at $48.60. The stock appears to be refilling a technical gap created in mid-March when the stock fell from about $52 to $47. Should shares be successful in refilling the gap, shares could rise to about $52, an increase of more than 7%.

As revenue and earnings forecasts for the company fall, investors and analysts still seem to think shares will continue to rise. That can all change by the middle of September after the company reports its quarterly results.

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.