Enterprise software giant Oracle Corporation (NYSE:ORCL) came out with mixed fiscal 2016 first quarter results after the market closed on Wednesday. Currency headwinds and the decline in sales of its traditional software packages hurt the company during the quarter, but it displayed continuing progress in its cloud-based software business. Oracle Corporation (NYSE:ORCL) reported revenue of $8.45 billion, which declined by 1.7% on the year, but in constant currency terms it was up by 7%. On the other hand, analysts were expecting the company to report revenue of $8.53 billion. Sales of Oracle’s on-Premise software business fell by 2% year-over-year to $5.8 billion, whereas total cloud revenues rose by 29% to $611 million.
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In addition, Oracle Corporation (NYSE:ORCL)’s net income declined to $1.75 billion or $0.40 per share from $2.18 billion or $0.48 per share reported for the same period last year. Excluding for other items and stock based compensation, the company’s EPS for the quarter stood at $0.53, which although was significantly down from the $0.62 posted a year earlier, was slightly above the consensus estimate of $0.52. The company didn’t provide any guidance for the coming quarter or the full year, however, the its CTO and Executive Chairman, Larry Ellison, said:
“We are still on target to book between $1.5 and $2.0 billion of new SaaS and PaaS business this fiscal year. That means Oracle would sell between 50% more and double the amount of new cloud business than salesforce.com plans to sell in their current fiscal year.”
After remaining sideways for nearly the first half of the year, Oracle Corporation (NYSE:ORCL)’s stock has slid since June and currently is trading down by 15.57% year-to-date. However, one metric that can suggest to investors what to expect from a stock’s performance is the hedge fund sentiment. That’s why we analyze 13F filings of over 700 hedge funds from our database on a quarterly basis.
We pay attention to the hedge fund sentiment even though most investors ignore their moves because, as a group, hedge funds’ average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged so they are likely to lag the market in a bullish environment. We ignore their short positions and our research has shown that hedge funds’ long picks generate strong risk-adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Total Return Index by an average of 95 basis points per month in our backtests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012 and we weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 36 months and outperformed the S&P 500 Index by some 60 percentage points (see the details here).
With this in mind, let’s look at what hedge funds think of Oracle Corporation (NYSE:ORCL). The popularity of the company among the funds we track was marginally down during the second quarter, and 58 investors held long positions that amassed around 4.50% of Oracle’s outstanding stock at the end of June, down from 59 at the end of March. Moreover, the aggregate value of hedge funds’ holdings in the company fell by 10.56% to $7.78 billion, amid a 6.3% decline of the stock during the second quarter. At the end of June, Boykin Curry‘s Eagle Capital Management was the largest shareholder of the company among the funds we cover, followed by First Eagle Investment Management; both investors held 42.24 million and 38.11 million shares of Oracle Corporation (NYSE:ORCL), respectively.
While hedge funds are not very thrilled about Oracle Corporation (NYSE:ORCL)’s prospects, several on the Street are. Yesterday, SunTrust upgraded the stock to ‘Buy’ from ‘Neutral’ and raised its price target to $48 from $37.99 and, on September 14, Jefferies Group reiterated its ‘Buy’ rating and set a price target of $50 on the stock. Considering this scenario, we don’t expect Oracle Corporation (NYSE:ORCL) to undergo a major correction in the near future, but, at the same time, we also don’t expect the stock to move up significantly anytime soon.
Disclosure: None
