Case Study: Oracle (ORCL) stock according to high performing analysts

Key Points

Performance

Oracle shares fell by 6.71% this week, pushing their year-to-date gains down to just 0.42%. This compares poorly to the S&P 500 which is up by 0.98% on a year-to-date basis thus far, and the Nasdaq Composite Index, which is up by 7.24% on the year. 

Event & Impact

Oracle posted fiscal 2023 third quarter results this week, beating Wall Street estimates on the bottom line while missing expectations on the top-line.  During Q3, ORCL’s revenue totaled $12.40 billion, missing Wall Street’s consensus estimate by $20 million.  Oracle’s Q3 non-GAAP earnings-per-share came in at $1.22, beating Wall Street’s consensus estimate by $0.02/share.

Noteworthy News:

Although Oracle missed top-line estimates during Q3, the company’s sales still increased by 18% on a year-over-year basis.  The company’s management team highlighted its ongoing cloud growth and market share expansion.  Oracle also announced that it was increasing its dividend by 25% alongside its third quarter numbers.  


Nobias Insights

65% of recent articles published by credible authors focused on Oracle shares offer a “bullish” bias.  One out of the two credible Wall Street analysts who cover ORCL believes shares are likely to rise in value. The average price target being applied to Oracle by credible analysts is $101.00, implying upside potential of approximately 20.1% relative to the stock’s current share price of $84.07.

 

Bullish Take

Vladimir Dimitrov, a Nobias 4-star rated author, said, “Given Oracle's high margin growth and strong competitive advantages, I'm still optimistic on the long-term attractiveness of the stock. With a forward non-GAAP P/E ratio of only 18x and sell-side analysts still have a lot of catching-up to do, Oracle remains as one of my highest conviction ideas.”

Bearish Take

Andrew Kessel, a Nobias 5-star rated author, said, “The cloud computing company posted revenue of $12.4 billion in the quarter ended February 28, up 18% year-over-year, just short of the Street's expectations of $12.43 billion.”

ORCL Mar 2023

Oracle (ORCL) posted its fiscal 2023 third quarter earnings this week, missing Wall Street’s estimates on the top-line, but beating expectations on the bottom-line.  Although Oracle missed revenue estimates, the stock still produced 18% year-over-year growth, showing strong demand for its products and services.   Yet, even with this growth in mind, Oracle shares fell by 6.71% on the week, pushing its year-to-date gains down to just 0.42%.  

Bearish Nobias Credible Analysts Opinions:

A Seeking Alpha report put a spotlight on an opinion expressed by Barclay's analyst Raimo Lenschow who said that Oracle had "an in-between quarter" that "did not represent a catalyst" for future growth.  Lenschow bumped his price target for Oracle up from $81 to $85 and said, "We believe many investors will remain skeptical.  If Oracle is correct, then we would have a multi-year story here, and waiting for actual numbers is a viable strategy for investors."

Andrew Kessel, a Nobias 5-star rated author, published a post-earnings update on Oracle this week at Proactive Investors.  Looking at the company’s Q3 results, Kessel said, “The cloud computing company posted revenue of $12.4 billion in the quarter ended February 28, up 18% year-over-year, just short of the Street's expectations of $12.43 billion. Non-Gaap earnings were $1.22 per share, up from $1.13 a year ago and ahead of expectations of $1.20.”

“However,” Kessel continued, “net income fell to $1.9 billion from $2.3 billion a year earlier.” “The biggest driver of revenue growth was cloud services. Fiscal third quarter cloud revenue was $4.1 billion, up 45% year-over-year,” he said.  

And, he pointed out that Oracle’s CEO, Safra Catz, put a spotlight on this as well during the company’s earnings report, stating, “Our strong quarterly earnings growth was driven by 48% constant currency growth for the total revenue of our two cloud businesses, infrastructure and applications.”  

Brody Ford, a Nobias 4-star rated author, also wrote a post-earnings report on Oracle this week.  His report was published at Yahoo Finance and once again, he focused on the strength of the company’s cloud operations.  

Ford said, “While Oracle’s cloud infrastructure business — renting computing power and storage — has been a relative laggard in the market, analysts have been optimistic the services are gaining customers and helping accelerate growth. The software giant has employed aggressive marketing and favorable pricing in an attempt to win clients from larger competitors Microsoft Corp. and Amazon.com Inc., which have seen cloud division growth slowdowns in recent quarters.”

“More than two-thirds of Oracle’s cloud revenue is generated by business applications such as Fusion software for managing corporate finances and NetSuite’s enterprise planning tools, which are targeted at small- and mid-size companies. Fusion sales increased 25% in the quarter, compared with 23% growth in the previous period. NetSuite revenue jumped 23%, compared with 25% in the fiscal second quarter,” he continued.  

Ford also touched upon the performance of Cerner, the healthcare oriented data company that Oracle purchased for $28 billion last year.  He wrote, “Oracle’s digital health records provider Cerner generated sales of $1.5 billion in the period, and Chairman Larry Ellison said the company anticipates even stronger growth for the unit.”

Ford also highlighted analyst commentary on Oracle’s Q3 results, stating, “Large cloud deals, including one announced with Uber Technologies Inc., increased investor excitement ahead of earnings, wrote JP Morgan’s Mark Murphy.” He also said that Bloomberg Intelligence’s Anurag Rana said, “We continue to believe the company is navigating the slowdown better than most large rivals.”

Looking ahead, Ford mentioned that the company provided guidance for the current quarter.  He said that Catz projected top-line growth of 16% during the quarter.  Ford continued, “The outlook is in line with estimates. Profit, excluding some items, will be $1.56 a share to $1.60 a share, she added. Analysts, on average, projected $1.45 a share.”

Lastly, regarding shareholder returns, he said, “Oracle increased its dividend 25% to 40 cents a share.”

According to Seeking Alpha, ORCL raised its dividend from $0.32/share to $0.40/share and this payment will be made on April 24th, 2032 to shareholders of record on April 11th, 2023.   Currently, Oracle yields 1.90%.  

Bullish Nobias Credible Analysts Opinions:

Vladimir Dimitrov, a Nobias 4-star rated author, doubled down on his bullish sentiment towards Oracle shares, writing an article this week which highlighted the stock as one of his highest conviction ideas in the market. 

Dimitrov noted that he likes Oracle’s operational “playbook” with regard to focusing on internal growth and high margin sales. He said, “One of the main pillars of Oracle's strategy has been to retain its high profitability, which allows the company to finance internally most of its growth projects.”

“This way,” Dimitrov wrote, “Oracle's management does not need to increase prices and slash fixed cost at a time when many of its peers would be forced by the market to do so. Thus, the company is in a much better position to consistently gain market share.”

“While some competitors are looking for ways to slash costs, Oracle is now doubling down on its strategy to grow organically by pursuing higher return on capital projects,” Dimitrov said.  “During the latest quarter, ORCL has reported capital expenditure at nearly 20% of sales, which highlights the level of growth in demand that the company is experiencing,” he continued.  

With these ongoing investments in mind, Dimitrov believes that Oracle can continue to take market share from larger peers in the cloud space.  He concluded this report, “Given Oracle's high margin growth and strong competitive advantages, I'm still optimistic on the long-term attractiveness of the stock. With a forward non-GAAP P/E ratio of only 18x and sell-side analysts still have a lot of catching-up to do, Oracle remains as one of my highest conviction ideas.”

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.


And it’s not just authors who are bullish on ORCL shares.  After the company’s Q2 report back in December of 2022, Bank of America analyst, Brad Stills, who carries a Nobias 4-star rating, raised his price target on ORCL shares from $90 to $95, due to the stock’s double digit revenue growth projections.  

Stills hasn’t updated his outlook following the Q3 report yet; however, overall, the average price target being placed on ORCL shares by the credible analysts that the Nobias algorithm follows is $101.00/share.  

Overall bias of Nobias Credible Analysts and Bloggers:


Today, Oracle trades at $84.07.  Therefore, the average analyst price target implies upside potential of approximately 20.1%.  Overall, the credible author community is bullish on ORCL shares as well.  65% of recent articles that focused on the stock expressed a “bullish” bias.  

Disclosure: Nicholas Ward has no ORCL position.    Nicholas Ward wrote this article for Nobias at their request with the intention 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.

 

Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.

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.

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