Oracle stock has taken off in recent weeks.
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Oracle shares are trading sharply higher after Barclays analyst Raimo Lenschow raised his rating on the enterprise software giant to Overweight from Equal Weight. Lenschow thinks Oracle’s cloud business is gaining traction—enough to speed up revenue growth and drive up the stock’s valuation.
He raised his target for the stock price to $80, from $66.
Oracle (ticker: ORCL) shares have been outperforming the market over the past few weeks, aided by a cover story in Barron’s that said the stock was undervalued and that the company’s growing cloud business had set the stage for a return to meaningful growth for the first time in more than a decade. The article pointed to three elements of the company’s cloud story: database software, enterprise applications, and the company’s public cloud business, which is taking on Amazon. com (AMZN), Alphabet (GOOG), and Microsoft (MSFT).
Lenschow made a similar case in a research note. “We see accelerating growth for Oracle, which in our view will drive multiple expansion, hence our upgrade,” he 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.”
He thinks the stage is set for Oracle’s growth businesses to more than offset the headwinds from more mature products, pushing overall growth higher, with better IT spending an additional catalyst. All of that, he says, should boost the stock’s valuation.
He noted that the stock trades for about 13 times estimated free cash flow for calendar 2022; his new target assumes the valuation on that basis moves up to 15 times.
Oracle is due to report its earnings for the February quarter next Wednesday. On the previous quarter’s call, CEO Safra Catz said that revenue for the quarter would be up by between 2% and 4%, or between 1% and 3% in constant currency. She projected adjusted quarterly profits, not presented according to generally accepted accounting principles, of between $1.09 and $1.13 a share, or between $1.06 and $1.10 a share in constant currency.
The consensus calls on Wall Street are for revenue of $10.07 billion, up 2.8%, and non-GAAP profits of $1.11 a share. The stock trades for about 14.5 times estimated earnings for the current fiscal year, and at about five times sales.
Oracle shares were up 6.6%, to $69.93 on Friday. The stock has now rallied 14% since the Barron’s cover story two weeks ago.
Write to Eric J. Savitz at [email protected]
