A leading provider of information technology and cloud services Oracle Corporation (ORCL) provides products and services that meet business information technology environments globally. The stock has gained 9.3% over the past month to close yesterday’s trading session at $70.03.
According to sources, ORCL has considered slashing costs by much to $1 billion and laying off "thousands" of employees as early as August. The job layoffs came only weeks after ORCL completed its $28 billion acquisition of Cerner, which would give the business a stronger position in the healthcare technology industry. According to the company's website, it acquired around 28,000 workers from Cerner as part of the transaction.
Also, ORCL has announced intentions to introduce new sovereign cloud regions in the European Union (EU) in 2023, allowing personal firms and public sector organizations to host sensitive functions and workloads.
Here's what could shape ORCL's performance in the near term:
Recent Developments
In July, Digital Remedy, a leading advertising and marketing technology platform that provides programmatic media solutions, including performance CTV, announced continued success with its collaboration with Oracle Moat to combat invalid traffic and ensure campaign viewability in CTV and over-the-top (OTT) environments.
Last month, ORCL opened the first Oracle Cloud Infrastructure (OCI) region in Mexico, making it the country's first major cloud provider to establish a dedicated cloud region. Oracle's Mexico-based clients, partners, and developers will now have access to a comprehensive choice of cloud services with built-in security, disaster recovery, and industry-leading price performance through the new area in the state of Querétaro.
Strong Profitability
ORCL's trailing-12-month net income margin of 15.8% is 222.1% higher than the industry average of 4.9%. Also, its ROC and ROA are 161.4% and 103.9% higher than the respective industry averages. Furthermore, its gross profit margin of 79.1% is 56.1% higher than the industry average of 50.7%.
Impressive Growth Prospects
Street expects ORCL's revenues and EPS to rise 17.8% and 7.1% year-over-year to $50 billion and $5.25, respectively, in fiscal 2022. In addition, ORCL's EPS is expected to rise at a 12.1% CAGR over the next five years.
Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in three of the trailing four quarters.
Discounted Valuation
In terms of forward Non-GAAP P/E, the stock is currently trading at 13.39x, 20.1% lower than the industry average of 16.8x. Also, its forward EV/EBIT of 11.74x is 19.7% lower than the industry average of 14.61x. Moreover, ORCL's forward Price/Cash Flow of 12.39x is 23.9% lower than the industry average of 16.28x.
Consensus Rating and Price Target Indicate Potential Upside
Of the 18 Wall Street analysts that rated ORCL, six rated it Buy, and 11 rated it Hold. The 12-month median price target of $87.40 indicates a 24.8% potential upside. The price targets range from a low of $70.00 to a high of $115.00.
POWR Ratings Reflect Solid Prospects
ORCL has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. ORCL has a B grade for Quality. ORCL's solid earnings and revenue growth potential is consistent with the Quality grade.
Of the 156 stocks in the F-rated Software – Application industry, ORCL is ranked #20.
Beyond what I stated above, we have graded ORCL for Sentiment, Growth, Value, Stability, and Momentum. Get all ORCL ratings here.
Bottom Line
ORCL's robust profitability and solid growth outlook for the upcoming quarters should aid its performance in the near term. In addition, given favorable analysts' price objectives and the company’s continued investment in its cloud infrastructure platform, the stock could soar in the near term. So, we think the stock could be a great buy now.
How Does Oracle Corporation (ORCL) Stack Up Against its Peers?
ORCL has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Rimini Street Inc. (RMNI), American Software Inc. (AMSWA), and IBEX Ltd. (IBEX).
ORCL shares fell $0.54 (-0.77%) in premarket trading Thursday. Year-to-date, ORCL has declined -18.72%, versus a -19.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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