Down 14% year to date and 17% over the past year, the risk-versus-reward in Oracle (ORCL) has become more favorable, according to John DiFucci analyst at Guggenheim who initiated coverage on the stock with a Buy rating and a $107 price target.
Currently trading at around $76 per share, that price target calls for close to 40% upside. Amid the recent market correction and the punishment in software stocks, Oracle has lost 30% of its value in nine months. And this is despite the company's consistent execution each quarter. So now might be a good opportunity to buy on the dip. The database and cloud giant Oracle will report first quarter fiscal 2023 earnings results after the closing bell Monday.
Ahead of its earnings report, the company has seen revenue estimates revised upward 16 times, with zero downward revisions. There continues to be increased confidence that not only can Oracle reaccelerate revenue growth in fiscal 2023, it can also grow above pre-pandemic levels for a sustained period of times. The company could experience "years of hypergrowth by migrating existing Oracle on-premise mission-critical workloads," noted DiFucci.
To justify the $107 price target, the analyst also added that any further penetration Oracle experiences in a broader market would be seen as "an added benefit.” Part of the thesis has to do with the fact that the global cloud computing market size is forecasted to grow some 16% in the next four year, rising from $445 billion in 2021 to $947.3 billion by 2026. Seen as a transformation play towards a cloud subscription-based model, Oracle on Monday must demonstrate how it can become a future global cloud leader.
In the three months that ended August, Wall Street expects Oracle to earn $1.08 per share on revenue of $11.45 billion. This compares to the year-ago quarter when earnings came to $1.03 per share on revenue of $9.73 billion. For the full year, ending May 2023, earnings are projected to rise 10.5% year over year to $5.25 per share, while full-year revenue of $49.9 billion would rise 17.6% year over year.
Now in the third year of its multi-year transition to a cloud subscription-based model, the database specialist is finally being recognized for its strong execution and increased cloud market share. Oracle's products such as its cloud applications continue to see 20% to 30% growth, offsetting declines in legacy segments. This means although Amazon’s (AMZN) AWS and Microsoft’s (MSFT) Azure are dominant cloud players, Oracle is gaining traction and poised to capture market share as the enterprise digital transformation continue.
In the fourth quarter, Oracle earned earned $1.54 per share , topping consensus estimates of $1.37 per share. Fourth quarter revenue came in at $11.8 billion, rising 5% year over year and estimates by $350 million. The company generated $2.9 billion in cloud-related revenue, which rose 19% year over year, driven by the strength in the cloud infrastructure business. "We believe that this revenue growth spike indicates that our infrastructure business has now entered a hypergrowth phase," Oracle CEO Safra Catz said in a statement.
The cloud services and license support revenue, which included software-as-a-service and infrastructure-as-a-service, rose 3% to $7.61 billion. Just as impressive, Cloud and on-premise licensing revenue rose 16% to $2.54 billion, offsetting 3% decline in hardware revenue. The market was impressive by these results, sending Oracle stock 11% higher, though the stock ultimately succumb to the overall market selloff. On Monday to maintain the momentum, Oracle must show revenue growth acceleration and margin expansion.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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