Evercore equity research analysts Kirk Materne, Ginette Rowe and Matthew L. Williams rate Oracle Corporation (NYSE:ORCL) as an Equal-Weight as they predict the company’s numbers to come in general in line with estimates.

Oracle

Expect steady results against a backdrop of favorable compares

Although we believe Oracle Corporation (NYSE:ORCL) continues to face headwinds as it relates to longer-term license growth, 3Q license (-1.5%) and total revenue (+3.7%) comps set a fairly low bar and we expect the company to put up results broadly in line with expectations (new s/w license growth of 1%-11% y/y and total revenue growth of 2% to 6% y/y). While sales execution is likely to remain a focus, we expect the combination of the 12c upgrade cycle (with the multi-tenant option being the main driver of upside) and some modest improvement in apps (also helped by the recent acquisition of Responsys) to result in solid F3Q results. Bottom line: long-term questions about Oracle’s ability to deliver consistent growth remain and we believe the company, at some point, may be forced to sacrifice margins in order to shift more aggressively towards the cloud. That being said, easy comps trump all in the immediate near-term and a solid F3Q should help shares continue to push towards $40/share. We believe the downside risk is limited and are raising our price target to $40 based on the shares trading to 12x our CY15 EPS estimate, but remain at Equal-Weight.

Oracle’s 3Q14 estimates

We expect generally in line results when Oracle Corporation (NYSE:ORCL) reports 3Q14 results on Tuesday, March 18th; our revenue and EPS estimates of $9.34bn and $0.70 are broadly in line with Street estimates ($9.40bn/$0.70) and reflect annual growth of 4.1% and 8.7%, respectively. We forecast new software license & cloud subscription revenue of $2.46bn, an increase of 5.0% y/y, with license update and support revenue (47% of TTM revenue) forecast to grow 5.9% y/y to $4.6bn; total software revenue is thus expected to grow 5.6% y/y to $7.06bn. Please see Page 2 for more detail on our expectations.

Expect investors will focus on 12c cycle and cloud revenue

We believe the trends around the 12c multi-tenant option (which is an up-sell opportunity) appear positive as customers look to consolidate some of their Oracle licenses. The upside to this is that Oracle gets a license uplift for the multi-tenant option; the downside is that customers will be able to drive higher utilization from existing licenses, which could potentially take away downstream capacity sales. The other area of focus, in our view, will be Oracle Corporation (NYSE:ORCL)’s success with its cloud offerings. Oracle reported 2Q14 non-GAAP cloud revenue of $262m, +14% y/y. We believe that Oracle will need to put up Cloud revenue more in the $275m range (up ~20% y/y) for investors to get more excited about its opportunity in this part of the software market.

Expect limited F/X impact

Barring a reversal of recent stability in the USD/JPY exchange rate, we believe the more stable currency environment could also provide a modest boost to FY15 growth.