The strong fundamentals and solid prospects of Oracle Corporation (ORCL) keep it in good stead to deliver consistent returns despite the broader technology sector currently being rocked by macroeconomic turbulence.
While the recent employment data has indicated mild progress for the Federal Reserve in its efforts to cool down what has otherwise been a honey badger economy, evidence of the collateral damage being caused by its campaign of seemingly endless interest-rate hikes has begun to surface.
Silvergate Capital Corporation (SI), amid a worsening crypto winter, has been closely followed by the failure of Silicon Valley Bank due to the worsening economics of debt-fueled tech companies that triggered a decline in its parent company, SVB Financial Group (SIVB).
While the jury is out on the Street wondering if 2008 is about to repeat itself, ORCL has been immune to the crisis unfolding in its backyard. It offers services and products tailored to the needs of enterprise IT environments worldwide. The company directly offers its license, cloud, hardware, services, and support to businesses in various industries, educational institutions, and government agencies.
Over the past three years, ORCL’s revenue has grown at a 6.4% CAGR. During the same period, the company also registered EBITDA and total asset growth at CAGRs of 5% and 10.8%, respectively.
Amid the pullback, after its revenue came in marginally weaker than expected, the stock has registered a 3.2% dip over the past month. However, it has gained 9.1% over the past six months to close the last trading session at $84.07.
Let’s take a closer look at the factors that could influence its near-term performance.
Positive Recent Developments
On March 9, ORCL announced an increase of 25% in its quarterly dividend payout from $0.32 per share to $0.40 per share. This increased dividend will be paid on April 24, 2023, to stockholders of record as of the close of business on April 11, 2023.
With this increase, ORCL’s annual dividend payout would amount to $1.60. This translates to a forward yield of 1.90% at the current price, better than the 4-year average dividend yield of 1.59%.
ORCL’s dividend payouts have grown for eight consecutive years. Over the past five years, its dividend payouts have grown at an 11% CAGR.
On March 2, Vivo, the Brazilian branch of Telefónica, announced that it would be migrating essential data and processes from its data center in Campinas, São Paulo, to Oracle Cloud Infrastructure (OCI) to reduce IT costs by 25% and accelerate new service offerings by 30%.
On March 1, AT&T (T) Mexico announced that it would migrate critical IT and business processes to OCI. This would enable the company to manage OSS/BSS workloads, analytics, and databases more efficiently in the cloud. As a result, it would be able to expand the benefits of mobile internet to more than 21 million subscribers and business customers.
On February 13, it was announced that Uber Technologies Inc. (UBER) had inked a seven-year deal with ORCL and Alphabet Inc. (GOOGL) to finalize its migration to cloud services and end reliance on its own data centers. This would enable the ride-hailing service provider to run its operations more efficiently and reliably and unlock engineering bandwidth to refocus on areas that would differentiate its product.
Solid Financials
For the third quarter of the fiscal year 2023 ended February 28, 2023, ORCL’s total revenue increased 17.9% year-over-year to $12.40 billion, powered by a 16.8% year-over-year increase in its cloud services and license support revenue to $8.92 billion.
During the same period, ORCL’s non-GAAP operating income increased 7.7% year-over-year to $5.19 billion. Its non-GAAP net income and EPS for the quarter increased 9% and 8% year-over-year to $3.38 billion and $1.22, respectively, hitting the high end of its own guidance.
ORCL’s total assets stood at $131.62 billion as of February 28, 2022, compared to $109.30 billion as of May 31, 2022.
Optimistic Analyst Estimates
Analysts expect ORCL’s revenue and EPS for the fiscal year 2023 to increase 17.5% and 2.8% year-over-year to $49.86 billion and $5.03, respectively. Revenue and EPS are expected to increase by 7.7% and 11% during the next fiscal year to $53.70 billion and $5.59, respectively.
POWR Ratings Reflect Robustness
ORCL has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has a B grade for Sentiment, consistent with optimistic analyst estimates. It also has a B grade for Stability, as reflected in its 60-month beta of 1.01 and the relatively low spread between its 52-week high and low prices of $91.22 and $60.78, respectively.
ORCL ranks #28 of 134 stocks in the Software – Application industry.
Click here for additional POWR Ratings for ORCL’s Growth, Value, Momentum, and Quality.
Bottom Line
With the acquisition of Cerner Corporation (CERN) on June 7, 2022, ORCL has added an entirely new dimension to its suite of offerings and is on the cusp of redefining the future of a sector as fundamental as healthcare. With CERN contributing $1.5 billion to total revenues for the third quarter of fiscal 2023, ORCL has just begun scratching the surface in this promising direction.
ORCL aims to modernize healthcare information systems to fully automate clinical trials to shorten the time it takes to deliver lifesaving new drugs to patients, enable doctors to easily access better information leading to better patient outcomes, and provide public health professionals with an early warning system that locates and identifies new pathogens in time to prevent the next pandemic.
In addition, the company’s robust financials, income generation track record, and optimistic prospects make it a wise investment for solid long-term risk-adjusted returns.
How Does Oracle Corporation (ORCL) Stack up Against Its Peers?
While ORCL has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its A-rated industry peers: Commvault Systems, Inc. (CVLT), Progress Software Corporation (PRGS), and eGain Corporation (EGAN).
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ORCL shares were trading at $84.31 per share on Monday morning, up $0.24 (+0.29%). Year-to-date, ORCL has gained 3.53%, versus a 0.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
