Oracle headquarters in Redwood City, Calif.
David Paul Morris/Bloomberg
Interest in Oracle stock continues to pick up ahead of the company’s earnings report for the fiscal third quarter ended in February, which is due after the close of trading on Wednesday.
As Barron’s outlined in a cover story several weeks ago, Oracle (ticker: ORCL) is beginning to see traction in its cloud businesses. There are three parts to the story—cloud-based versions of its enterprise applications; Autonomous Database, a cloud-based version of its core database business; and Oracle Cloud Infrastructure, the company’s public cloud service, which competes head-to-head with public cloud leaders Amazon.com (AMZN), Microsoft (MSFT), and Alphabet (GOOGL). Those initiatives together are setting the stage for a return to sustained top-line growth at Oracle for the first time in more than a decade.
In December, on a conference call with analysts following the second-quarter report, Oracle CEO Safra Catz projected revenue for the February quarter would be up between 2% and 4%, or 1% to 3% in constant currency. She said Oracle expects non-GAAP profits of between $1.09 and $1.13 a share, or between $1.06 and $1.10 a share in constant currency. Street estimates call for revenue or $10.07 billion, up 2.8%, and profits of $1.11 a share.
For the May quarter, the Street consensus calls for revenue of $10.89 billion, up 3.8%, and non-GAAP profits of $1.28 a share.
The Street is beginning to believe in the Oracle story again for the first time in eons. On Friday, Barclays analyst Raimo Lenschow lifted his rating on Oracle shares to Overweight from Equal Weight, while lifting his target to $80 from $66. “We see accelerating growth for Oracle, which in our view will drive multiple expansion, hence our upgrade,” Lenschow wrote. “The two factors here are an improving cloud mix and a better IT spend environment. Oracle has been ignored by investors for a while.”
On Monday, Cowen analyst J. Derrick Wood reiterated his Outperform rating on Oracle stock, lifting his target price to $77 from $70. He expects Oracle to report a “solid quarter” on Wednesday, driven by an uptick in spending by small- and medium-sized businesses, and improved purchase interest from vertical markets badly battered by the pandemic. He also sees strengthening of the company’s Oracle Cloud segment. And he adds that despite the recent rally in the stock, valuation remains attractive.
“Oracle now finds itself in a spot that we think could drive more interest to the name, including value rotation trade, stock-price momentum, accelerating growth, and margins reaching eight-year highs, all with the stock still well below market multiples,” Wood writes. “These developments should keep the stock going higher.”
KeyBanc Capital Markets analyst Michael Turits on Tuesday likewise repeated his Overweight rating on Oracle stock, lifting his target price to $82 from $70. Turits writes that he sees “an improved enterprise spending environment, as well as improving demand for back office-cloud migrations,” with increased interest in Oracle’s public cloud and accelerating adoption of the company’s cloud-based Autonomous Database software. “With an improved enterprise-software-spending environment and positive trends for Oracle’s database, applications, and [cloud infrastructure] businesses, we retain our positive long-term outlook and bull case for revenue growth acceleration…over the next few years,” he writes.
Monness Crespi Hardt’s Brian White on Tuesday reiterated his Buy rating and $82 target price on Oracle stock. “With the fear of missing out on the next big digital theme with little regard for valuation, next-gen software multiples have been bid into the stratosphere over the past year with a growth-at-any-price investment philosophy, a phenomenon that has begun to resemble the tech mania of the late 1990s,” he writes. “We believe Oracle offers investors a high-quality, value play with the opportunity to capitalize on the company’s cloud transformation and increasingly attractive model.”
Oracle stock is lagging the market Tuesday, but still show a gain of 0.6%, to $72.58. The stock has rallied almost 19% since our cover story in the Feb. 22 edition of Barron’s.
Write to Eric J. Savitz at [email protected]
