ORCL with Nobias Technology: Case Study on Oracle
Like so many technology stocks in today’s marketplace, Oracle (ORCL) shares were recently down as much as 25% on a year-to-date basis. However, unlike the majority of its peers, who have continued to experience negative momentum and bearish sentiment related to the macro rising interest rate environment, Oracle shares had a nice bounce recently, on the heels of an impressive earnings report. Furthermore, last week Oracle closed on a major acquisition which diversified the company’s revenue stream further into the healthcare arena, which is considered to be a durable growth area of the market.
The combination of bullish M&A and a positive earnings surprise caused Oracle shares to rally more than 9% on 6/14/2022. And, looking at the bullish bias expressed by the vast majority of credible authors and the consensus price target amongst the credible Wall Street analysts tracked by the Nobias algorithm, it appears that ORCL shares may have more room to run.
A potential growth catalyst for Oracle moving forward has to do with its recent $28 billion acquisition of Cerner (which closed on 6/8/2022), which provides the company with a strong foothold in the electronic healthcare records business.
Ron Miller, a Nobias 4-star rated author, recently published an article highlighting the official close of that deal. In his article, Miller quoted Holger Mueller, an analyst at Constellation Research, who had this to say about the Cerner acquisition when the deal was originally announced: “It’s a smart move by Oracle. It cements Oracle technology even deeper into healthcare, and brings a lot of current and especially future work load to Oracle Cloud. Not to mention that Oracle is buying into the largest and fastest-growing vertical industry.” Miller continued, “Cerner certainly has the potential to do that, but it depends on how the two companies fit together in the end, and if Oracle can take all of that market potential and turn it into a viable business inside Oracle.”
There are always uncertainties with large scale M&A like this; however, what investors can know for sure is that this $28 billion deal is closed and therefore, at the very least, Oracle has another growth market to tap into moving forward.
With regard to the potential strength/size of this growth potential, in a recent article, Vladimir Dimitrov, a Nobias 4-star rated author, stated, “During the last conference call, Larry Ellison called healthcare "the largest industry on Earth" and it is also a major pillar for Oracle's strategy in ERP and HCM fields.” With that in mind, coming into Oracle’s fiscal Q4 report, Dimitrov concluded his article by highlighting the stock’s recent sell-off and re-confirming his long-term bullish outlook.
Dimitrov wrote, “Oracle has significantly outperformed the broader market and most of its peers since I first explained why high quality businesses are not necessarily expensive. The recent sell-off was at odds with the company's strengthening competitive positioning and does not appear to have been driven by fading momentum trade, which has likely brought down valuations of many companies within the sector on a more permanent basis. That is why, I intend take advantage of these developments and add to my current long position in the company.”
When Oracle reported its Q4 results on 6/13/2022, Oracle beat Wall Street’s expectations on both the top and bottom lines. Stephen Guilfoyle, a Nobias 4-star rated author, covered these results in an article at The Street. Guilfoyle broke down ORCL’s fundamental results, saying, “For the firm's fiscal fourth quarter, Oracle posted adjusted EPS of $1.54 (GAAP EPS: $1.16) on revenue of $11.84B. Both top and bottom line performance beat Wall Street, while sales grew 5.4% (+10% in constant currency) year over year.” He continued, “Behind the headlines, Total Q4 Cloud Revenue, including IaaS (Infrastructure as a Service) and SaaS (Software as a Service) amounted to $2.9B, up 19%, 22% in constant currency. Infrastructure Cloud Revenue (IaaS) increased 36%, 39% in constant currency. Fusion ERP Cloud Revenue (SaaS) increased 20%, 23% in constant currency. NetSuite ERP Cloud (SaaS) Revenue increased 27%, 30% in constant currency.”
Guilfoyle highlighted Oracle’s balance sheet at the end of the quarter, writing, “As of May 31, 2022, Oracle had a net cash position of $21.902B on the books. This is down a bit since February, but with a nearly equal increase in accounts receivable. This left current assets roughly unchanged at $31.633B.” He continued, “This measures very well against current liabilities of $19.511B for a current ratio of 1.62.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Guilfoyle noted that Oracle did not provide forward guidance during the Q4 report; however, he said that management highlighted their future outlook during the Q4 conference call. Regarding this commentary, Guilfoyle stated, “For the current quarter, Oracle sees adjusted EPS in a range spanning from $1.09 to $1.13. That would be up from the year ago comp of $1.03. The firm also sees revenue growth of 20% to 22%, which would put sales in a range of $11.64B to $11.83B. Management also projected 30% cloud growth for the full year coming.”
It’s also important to note that ORCL’s success on the bottom-line has directly translated to higher shareholder returns. On 6/13/2022, Oracle announced that it was raising its quarterly dividend by 18.5%, from $0.27/share to $0.32/share. Overall, 85% of recent reports that have been published by the credible authors that we track have expressed a “Bullish” bias when it comes to ORCL shares.
The average price target being applied to Oracle by the credible Wall Street analysts that Nobias tracks is currently $84.71. Today, ORCL shares trade for $70.47/share. Therefore, with that average price target in mind, the aggregate opinion of credible analysts points towards upside potential of approximately 20.2%.
Disclosure: As of 6/15/2022, Nicholas Ward has no ORCL position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.