The Securities and Exchange Commission announced settled charges on September 27, 2022, requiring Oracle Corporation (ORCL) to pay more than $23 million to resolve charges for violating the Foreign Corrupt Practices Act (FCPA) provisions.

ORCL provides products and services that address enterprise information technology (IT) environments. The company’s businesses include cloud and license, hardware, and services. Its products and services include applications and infrastructure offerings delivered through various IT deployment models.

ORCL has been fined for violating the provisions of the FCPA as its subsidiaries in Turkey, the UAE, and India created and used slush funds to bribe foreign officials for getting business between 2016 and 2019.

According to the SEC’s order, ORCL’s subsidiaries in Turkey and UAE also used the slush funds to pay for foreign officials to attend technology conferences, completely violating the company’s policies and procedures. 

Also, during certain instances, ORCL’s Turkey subsidiary employees used the slush funds for the officials’ families to accompany them on international conferences or take side trips to California.

ORCL’s Corporate Communications VP, Michael Egbert, said, “The conduct outlined by the SEC is contrary to our core values and clear policies, and if we identify such behavior, we will take appropriate action.”

The stock has declined 23.6% in price year-to-date and 27.2% over the past year to close the last trading session at $66.64. It is currently trading 37.3% below its 52-week high of $106.34, which it hit on December 10, 2021.

On the other hand, ORCL completed the acquisition of a health IT company named Cerner in June. The company is growing its applications and infrastructure cloud businesses.

ORCL’s two cloud businesses currently account for more than 30% of its total revenue. The company expects its cloud businesses to account for an even larger share of its overall revenue. As Cerner is integrated into ORCL, it is expected to positively impact its revenue and earnings in the upcoming quarters and result in cost efficiencies.

The company expects its constant currency organic revenue growth to hit double digits along with a similar increase in its EPS. ORCL Chairman and CTO Larry Ellison said, “We expect Cerner to do even better in the coming quarters as we develop an all-new suite of healthcare cloud services.”

“Multi-Cloud access to the Oracle Database and Oracle’s MySQL HeatWave database will make the world’s two most popular databases even more popular,” he added.

Here’s what could influence ORCL’s performance in the upcoming months:

Steady Topline Growth

ORCL’s total revenues increased 17.6% year-over-year to $11.44 billion for the first quarter that ended August 31, 2022. The company’s non-GAAP operating income increased 3.3% year-over-year to $4.47 billion. Its non-GAAP net income declined 3.9% year-over-year to $2.82 billion. In addition, its non-GAAP EPS remained flat year-over-year at $1.03.

Favorable Analyst Estimates

Analysts expect ORCL’s EPS for fiscal 2023 and 2024 to increase 1.5% and 13.2% year-over-year to $4.97 and $5.63. Its revenue for fiscal 2023 and 2024 is expected to increase 16.6% and 6.3% year-over-year to $49.48 billion and $52.59 billion.

Mixed Valuation

In terms of forward non-GAAP P/E, ORCL’s 13.40x is 23.7% lower than the 17.56x industry average. Its forward EV/EBIT of 12.56x is 16.3% lower than the 15.01x industry average.

However, the stock’s 5.21x forward EV/S is 102% higher than the 2.58x industry average. In addition, its 3.63x forward P/S is 38.5% higher than the 2.62x industry average.

Higher-than-industry Profitability

In terms of the trailing-12-month gross profit margin, ORCL’s 77.78% is 54.2% higher than the 50.43% industry average. Likewise, its 21.74% trailing-12-month levered FCF margin is 173.9% higher than the industry average of 7.94%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 11.70%, compared to the industry average of 2.37%.

POWR Ratings Show Promise

ORCL has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has a B grade for Stability, in sync with its 0.86 beta.

It has a C grade for Value, consistent with its mixed valuation.

ORCL is ranked #26 out of 146 stocks in the Software – Application industry. Click here to access ORCL’s Growth, Momentum, Sentiment, and Quality ratings.

Bottom Line

Despite the regulatory issues, the company is expected to witness solid growth as the demand for cloud remains extremely strong as companies keep investing in improving their cloud ecosystems. Moreover, its acquisition of Cerner is expected to enhance its revenue and earnings.

Given the favorable analyst estimates and high profitability, we think it could be wise to buy the stock now.

How Does Oracle Corporation (ORCL) Stack Up Against its Peers?

ORCL has an overall POWR Rating of B, equating to a Buy rating. This rating is superior to its peers within the Software – Application industry, such as Commvault Systems, Inc. (CVLT), Rimini Street, Inc. (RMNI), and eGain Corporation (EGAN).

ORCL shares were trading at $66.10 per share on Thursday morning, down $0.54 (-0.81%). Year-to-date, ORCL has declined -23.29%, versus a -19.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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