Predicting that Oracle (ORCL) will not be able to grow faster than 2%-4% for the “foreseeable future,” Barclays analyst Raimo Lenschow downgraded the stock to Equal Weight. The analyst believes the competitive situation in the company’s core database market and cloud is “not getting easier.” Even more bearish on Oracle, his peer at Atlantic Equities started coverage of the stock with an Underweight rating, arguing that Artificial Intelligence favors the dominant cloud providers in a “winner takes all” environment, which should exacerbate market share loss in applications at Oracle, driven by the decline in legacy on-premise solutions.
MOVING TO THE SIDELINES: In a research note to investors on Wednesday, Barclays’ Lenschow downgraded Oracle to Equal Weight from Overweight and lowered his price target on the shares to $55 from $60. The competitive situation in the company's core database market and cloud is "not getting easier," he contended, and Oracle’s answers in the form of autonomous database and next-generation IaaS are still only in the early stages of their life cycles. The analyst believes Oracle will not be able to grow faster than 2%-4% for the “foreseeable future” after working through the various mix effects, such as declining licenses and hardware versus cloud growth. Some margin improvements and aggressive stock buybacks are creating a slightly better picture for earnings per share, but with no change to the underlying story in sight, Lenschow believes such a scenario is priced in and shares will likely be range-bound.
SELL ORACLE: While highlighting that he is positive on the enterprise software sector, which benefits from secular growth driver by enterprises undertaking their digital transformation, Atlantic Equities analyst Dimitri Kallianiotis started Oracle with an Underweight rating and $45 price target due to its lack of growth driven by market share erosion in database. Market share loss in applications could get worse as ERP applications accelerate their move to the cloud, he added. The analyst told investors that be believes AI favors the dominant cloud providers in this "winner takes all" environment and thinks AI will reinforce the dominant position of the largest player in each market segment, which should exacerbate market share loss in applications at Oracle, driven by the decline in legacy on-premise solutions. Kallianiotis estimates that Oracle’s organic revenue growth has been broadly flat excluding the positive impact of M&A and foreign exchange. The analyst also initiated Salesforce (CRM), Autodesk (ADSK) and Workday (WDAY) with Overweight ratings, and Adobe (ADBE) and ServiceNow (NOW) with Neutral ratings.
PRICE ACTION: In late morning trading, shares of Oracle have dropped about 0.5% to $47.65.