With Oracle (ORCL) stock falling 23% year to date and 20% over the past year, the risk-versus-reward has become favorable, according to Morgan Stanley. During the market correction, the stock has lost 35% of its value in six months. And this is despite the company's consistent execution each quarter.
The software giant will report fourth quarter fiscal 2022 earnings results after the closing bell Monday. Currently trading at $67 per share, Oracle stock might not be cheap for very long if investors are paying attention, noted analyst Keith Weiss. Rating the stock as Outperform with a price target of $88, Oracle is an “interesting opportunity” noted Weiss. “There is increased confidence" the company can see a "modest revenue acceleration" in fiscal 2023 and grow above pre-pandemic levels for a sustained period of time.
Part of Weiss’ thesis has to do with the fact that the global cloud computing market size is forecast to grow some 16% in the next four years, rising from $445 billion in 2021 to $947.3 billion by 2026. Oracle is poised to capture market share as its enterprise digital transformation continues. Meanwhile, analyst Brian White, who has a Buy rating and $125 price target on the stock, believes the company "offers investors a high-quality, value play with the opportunity to capitalize on the company’s cloud transformation and increasingly attractive model.”
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. Currently seen as a transformation play based on its business transition 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 May, 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, earnings are projected to rise 1.7% year over year to $4.75 per share, while full-year revenue of $42.26 billion would rise 4.4% year over year.
The projected revenue increase of 4% for the quarter and the meager 4.4% 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’s (AMZN) AWS which 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. This means although Amazon’s AWS and Microsoft’s (MSFT) Azure are dominant cloud players, Oracle is gaining traction. In the third quarter, Oracle earned earned $1.13 per share on $10.51 billion in revenue, beating on both the top and bottom lines. The company generated $2.4 billion in cloud-related revenue, which rose 24% year over year.
Cloud license and on-premise license revenue came in at $1.29 billion, while cloud services and license support revenue rose to $7.64 billion, both coming in ahead of expectations. Just as impressive, for the trailing nine months of the fiscal year, Oracle’s adjusted EPS was up 7% year over year to $3.37. The market was impressive by these results, though the stock ultimately succumb to the overall selloff within the market. Oracle on Monday must continue to demonstrate how this deal will be supportive of its fundamentals and ways it will sustain recent growth rate.
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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