Despite falling 10.3% year to date, while falling some 20% from recent highs, shares of Oracle (ORCL) have risen 17% over the past 12 months, besting the 14% rise in the S&P 500 index. And during the recent market correction, Oracle stock has been one of the better-performing names among large-cap software tech. Yet shares still appear relatively undervalued, given the company's consistent execution of the past three quarters.
The software giant Oracle will report third quarter fiscal 2022 earnings results after the closing bell Wednesday. Now in the third year of this multi-year transition to a cloud subscription-based model, the database specialist is finally being rewarded for its strong execution and increased cloud market share. But the company’s $28.3 billion all-cash deal for health information services provider Cerner (CERN) has garnered mixed analyst reviews.
“Working together, Cerner and Oracle have the capacity to transform healthcare delivery by providing medical professionals with better information—enabling them to make better treatment decisions resulting in better patient outcomes,” said Larry Ellison, Chairman and Chief Technology Officer, Oracle. “With this acquisition, Oracle’s corporate mission expands to assume the responsibility to provide our overworked medical professionals with a new generation of easier-to-use digital tools that enable access to information via a hands-free voice interface to secure cloud applications.”
Nevertheless, it’s an expensive deal at $95 per share, especially when factoring that Cerner’s FY2021 revenues reached less than $6 billion. Oracle is no stranger to large acquisitions as a way to gain ground in the Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) markets. Currently seen as a transformation play, based on its business transition towards a cloud subscription-based model, Oracle on Wednesday must continue to demonstrate how this deal will be supportive of its fundamentals and ways it will sustain recent growth rate.
In the three months that ended February, Wall Street expects Oracle to earn $1.17 per share on revenue of $10.52 billion. This compares to the year-ago quarter when earnings came to $1.16 per share on revenue of $10.09 billion. For the full year, ending May, earnings are projected to rise 3.4% year over year to $4.83 per share, while full-year revenue of $42.34 billion would rise 4.6% year over year.
The projected revenue increase of 4% for the quarter and the meager 4.6% revenue growth for the year doesn’t tell Oracle's entire growth story, particularly of the progress the company has made to narrow the gap between itself and the likes of Salesforce (CRM), Workday (WDAY) and Amazon (AMZN) currently dominate the Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) market. Oracle's products such as its cloud applications continue to see 20% to 30% growth, offsetting declines in legacy segments.
In the second quarter, Oracle earned $1.21 per share on revenue of $10.36 billion. The results easily beat analysts estimates of $1.11 per share, while revenue topped forecast by $150 million. The market was impressed by these results. Deutsche Bank analyst Brad Zelnick upgraded the stock to Buy and raised his price target to $120. He said he expects Oracle to "capture its fair share" of the cloud infrastructure market, one that he expects could grow 30% annually "over the next several years."
As such, the market on Wednesday will key in on cloud areas such as Oracle Cloud Infrastructure segment and the company’s public cloud service to assess the stock’s potential. Investors will also listen for important details related to the Cerner deal. But Oracle’s momentum is poised to continue.
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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