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Does Jefferies Prefer Microsoft Stock over Oracle?


Oct. 8 2019, Updated 10:37 a.m. ET

Jefferies upgraded Microsoft (MSFT) stock to “buy.” The firm also raised its target price on Microsoft stock from $93 to $160. At the same time, Jefferies downgraded Oracle (ORCL) stock to “hold.” The company also lowered its target price on Oracle stock from $66 to $60.

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Microsoft stock versus Oracle

Jefferies thinks that Microsoft stock is the “safest large-cap investment option.” The firm sees Azure, LinkedIn, and Office as earnings growth drivers for the company. Jefferies’ analyst Brent Thill wrote, “We see a large diversified business with excellent visibility that has a clear line of sight into double-digit revenue growth for the foreseeable future.”

Thill favors Microsoft stock over Oracle stock due to its growth trajectory. He wrote, “We note that Oracle has significantly underperformed the IGV (IGV) on a three-year, five-year and 10-year basis as the company loses ground in the infrastructure business as workloads migrate to the cloud.”

Microsoft’s upcoming earnings

Jefferies changed the ratings right before the earnings season. Microsoft is scheduled to post its results for the first quarter of 2020 later in October. Analysts expect the company’s revenues to rise 11% YoY (year-over-year) to $32.2 billion. They expect Microsoft’s EPS to grow 9% YoY to $1.24.

In the fourth quarter, Microsoft’s revenues rose 12% YoY to $33.7 billion. The company also beat analysts’ estimates by about 3%. Microsoft’s adjusted EPS rose 21% YoY to $1.37, which beat the forecast by around 13%. The company’s operating earnings rose 20% YoY to $12.4 billion in the fourth quarter. The earnings rose due to an increase across the board in Microsoft’s business segments.

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Analysts’ expectation from Oracle

Analysts have dull expectations from Oracle. Oracle is expected to post its earnings for the second quarter of 2020 in the first half of December. Analysts expect the company’s revenues to rise 1% to $9.6 billion. Oracle’s profits will likely rise 11% to $0.88 per share. In previous results, Oracle missed its revenue estimate by about 1%, but its EPS matched analysts’ forecast.

Analysts are positive on Microsoft stock, divided on Oracle

Wall Street analysts are positive about Microsoft stock. Currently, 32 out of 34 analysts rate Microsoft as a “buy” or “strong buy.” Analysts’ mean target price on Microsoft stock is $157, which implies a 14% upside from the current level.

However, analysts are divided on Oracle stock. Among the 34 analysts, 23 recommend a “hold,” seven recommend a “buy,” and four recommend a “sell.” Analysts expect the stock to have only a 3% upside potential considering its mean target price of $56.

Analysts’ recommendations for peers

All of the 48 analysts that cover Amazon (AMZN) recommend a “buy.” The mean target price on Amazon stock is $2,304, which implies 33% upside potential. Analysts expect Amazon’s earnings to fall 21% YoY in its upcoming quarterly results.

Among the 39 analysts that rate Alphabet (GOOGL) (GOOG), 35 recommend a “buy,” while four recommend a “hold.” Analysts’ mean target price on Google stock is $1,415, which implies 17% upside potential. They expect Google’s earnings to fall 5% YoY in its next quarterly results.

Among the 43 analysts that cover Apple (AAPL), 23 recommend a “buy,” 17 recommend a “hold,” and three recommend a “sell.” The mean target price on Apple stock is $228, which implies less than 1% upside potential. Analysts expect Apple’s earnings to fall 3% YoY in its upcoming results.

To learn more about tech companies’ growth path, read AMZN, FB, AAPL, MSFT, GOOGL: Tech Stock Forecasts.


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