Following the craze for the latest chatbot, ChatGPT, UBS Global Wealth Management recently forecasted that the AI hardware and services market will grow at a CAGR of 20% and hit $90 billion by 2025.

Amid the growing tech integration, quality software stock Oracle Corporation (ORCL) is witnessing colossal investor interest. ORCL’s strong market position allows it to advance organic growth and pursue strategic acquisitions and collaborations. Moreover, the company also pays stable dividends. I think ORCL can be a solid long-term investment.

ORCL has raised its dividend payouts for eight consecutive years. Its annual dividend of $1.28 yields 1.46% on the prevailing market price, while its four-year average yield is 1.59%. Its dividend payouts have grown 10.1% CAGR for the past three years.

The stock has gained 20.1% over the past nine months, closing the last trading session at $87.40. It has gained 15.1% over the past year. Moreover, the stock is trading above its 50-day and 200-day moving averages of $86.09 and $76.27, respectively, indicating an uptrend.

Here is what could shape ORCL’s performance in the near term:

Recent Positive Developments

On March 1, ORCL announced that AT&T Mexico is moving critical IT and business processes to Oracle Cloud Infrastructure (OCI) to expand the benefits of mobile internet to more than 21 million subscribers and business customers in industries such as education, health, and banking nationwide. This reflects ORCL’s reach and solid industry position.

On February 7, ORCL launched Oracle Banking Cloud Services, a new suite of componentized, composable cloud-native services, to address banks’ challenges like transaction volumes, customer expectations, and competitive threats.

Sonny Singh, executive vice president, and general manager of Oracle Financial Services. “We have built one of the world’s most comprehensive suites of cloud-native SaaS solutions so that banks of all sizes can innovate with speed, security, and scale without compromising their existing environments.”

On February 6, it was reported that ORCL had weighed a $1.5 billion multi-year investment in Saudi Arabia as it built up its cloud footprint in the kingdom and launched its third public cloud region in Riyadh.

ORCL had also won contracts from the crown prince’s $500 billion flagship NEOM project, a futuristic mega city and economic zone the crown prince is building on the Red Sea coast. This should boost the company’s topline.

Strong Financials

ORCL’s total revenue increased 18.5% year-over-year to $12.28 billion during the second quarter of the fiscal year 2023 ended November 30, 2022. Its non-GAAP operating income increased 4.8% year-over-year to $5.09 billion. The company reported a non-GAAP net income of $3.31 billion or $1.21 per share.

Favorable Analyst Expectations

Analysts expect ORCL’s EPS for the fiscal third quarter that ended February 2023 to increase 6.5% year-over-year to $1.20. Its revenue is expected to rise 18.1% year-over-year to $12.42 billion in the same quarter.

ORCL’s revenue is expected to increase 17.5% year-over-year to $49.87 billion in the fiscal year ending May 2023. Its EPS is expected to increase marginally year-over-year to $4.91 in the same year. Moreover, the stock has surpassed the consensus revenue estimates in each of the four trailing quarters, which is impressive.

Robust Profitability

ORCL’s trailing-12-month gross profit margin of 76.10% is 54.7% higher than the industry average of 49.19%. Its trailing-12-month EBIT and EBITDA margins of 31.42% and 39.88% are 404.4% and 252% higher than the industry averages of 6.23% and 11.33%, respectively.

Also, ORCL’s trailing-12-month net income margin of 19.09% is 561.1% higher than the 2.89% industry average.

POWR Ratings Reflect Promising Outlook

ORCL has an overall rating of B, which equates to a Buy in our proprietary 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 favorable analyst expectations.

In the 139-stock Software – Application industry, ORCL is ranked #30.

Click here for the additional POWR Ratings for ORCL (Growth, Value, Momentum, Stability, and Quality).

Bottom Line

As per Statista, ORCL was the world’s most popular database management system as of February 2023. Its revenue has increased at CAGR of 5.2% over the past three years.

Furthermore, Wall Street analysts expect the stock to hit $97.63 in the near term, indicating a potential upside of 11.7%.

Moreover, as the software industry is expected to be in the limelight, attracting investments, ORCL should generate robust returns.

How Does Oracle Corporation (ORCL) Stack up Against Its Peers?

While ORCL has an overall POWR Rating of B, one might consider looking at its industry peers with an overall A (Strong Buy) rating: eGain Corporation (EGAN), Progress Software Corporation (PRGS), and IBEX Limited (IBEX).

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ORCL shares were unchanged in premarket trading Wednesday. Year-to-date, ORCL has gained 7.33%, versus a 3.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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