Oracle Corporation (ORCL - Analyst Report) is scheduled to report first-quarter fiscal 2017 earnings results on Sep 15. The company expects the ongoing momentum in its cloud-based products to drive earnings and top-line growth for the quarter.

Notably, in fourth-quarter 2016, SaaS and PaaS revenues jumped 66% year over year (up 68% on constant currency) to $690 million. Moreover, SaaS and PaaS billings surged 38% year over year, driven by an expanding customer base.

The strong momentum drove Oracle shares up almost 5.3% post fourth-quarter 2016 results, reported on Jun 16. Notably, shares have increased 11.4% on a year-to-date basis as compared with S&P 500’s return of almost 6% over the same time frame.
 

Price and EPS Surprise

Price and EPS Surprise | Quote

For first-quarter 2017, Oracle anticipates SaaS and PaaS revenues to grow in the range of 75% to 80%. Further, total revenues are anticipated to grow in the range of 2% to 5%, while non-GAAP earnings are estimated to be in the range of 56–60 cents per share, on a constant currency basis.

Customer Wins, Acquisitions Key Factor

Of late, Oracle’s cloud-based products have been selected by the likes of Asahi Refining, Forbes Media, Supervalu, Glens Falls Hospital, University of Pittsburgh Medical Center (UPMC), NYU Langone Medical Center, The University of Kansas (KU) and Pfizer among many others. We believe that the expanding customer base will eventually drive top-line growth.

Moreover, collaboration with the likes of British Telecommunications Plc (BT) is expected to improve Oracle Cloud’s penetration ability going ahead.

Further, strategic acquisitions – Textura, Opower, LogFire – are expected to play a significant role in expanding the company’s product portfolio. This will also provide it a competitive edge against the likes of salesforce.com (CRM - Analyst Report) , IBM (IBM) and Microsoft (MSFT). The planned Netsuite acquisition will give Oracle a major boost in the cloud space and also improve its penetration in the small and medium business segment.

Adverse Rulings to Impact

However, Oracle received adverse ruling in both of its long running lawsuits against Alphabet and Hewlett Packard Enterprise, which can impact its financials. Although the company is anticipated to appeal against the rulings, we believe that the unfavorable decisions will remain an overhang on the stock 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 -1.85% as the Most Accurate estimate of 53 cents is lower than the Zacks Consensus Estimate of 54 cents.

Zacks Rank: Oracle has a Zacks Rank #4 (Sell). 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.

Key Picks

Better-ranked stocks include Avid Technology (AVID - Snapshot Report) and Infoblox (BLOX - Snapshot Report) , both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

See our video article on Oracle's expected Q1 earnings here.