HSBC's Stephen Bersey initiated their coverage on Oracle (NYSE: ORCL) with a Strong Buy rating and a $144 price target. According to Bersey, the U.S. tech sector is experiencing tailwinds that will ramp up operating performance for some companies, but not all. While Bersey acknowledges "the promise of AI," they caution that the timing remains uncertain. However, demand for cloud and digital transformation "remains strong." Bersey also stated a preference for companies that are "at critical stages of their operations with leveraged operating models poised to deliver better operating performances than peers."
Oracle, a leading provider of database and middleware software, application software, cloud infrastructure software, and hardware systems, released its financial results for the first quarter of 2024. The company reported earnings per share (EPS) of $1.19, which beat the Zacks Consensus Estimate by 4.39% and marked a 15.5% increase compared to the same period last year. Revenue for the quarter stood at $12.5 billion, in line with the Zacks Consensus Estimate, but representing an 8.8% increase year-over-year. Notably, Oracle's cloud revenue saw significant growth, reaching $4.6 billion, a 30% increase compared to the previous year's first quarter.
Looking ahead, Oracle's management provided guidance for the second quarter of 2024. They expect EPS growth in the range of 7% to 11% and revenue growth between 5% and 7%. Additionally, the company forecasts cloud revenue to grow by 29% to 31%. Safra Catz, CEO of Oracle, highlighted the company's strong performance in the cloud infrastructure market, with revenue growing by 66% in the first quarter. Catz also emphasized the predictability and profitability of Oracle's recurring revenue stream, which contributed to a 16% growth in non-GAAP earnings per share, 21% growth in free cash flow, and $7.0 billion in operating cash flow.
Larry Ellison, Chairman and CTO of Oracle, expressed enthusiasm for Generative AI, calling it potentially the most important new computer technology ever. Ellison noted the significant investments being made in AI, with AI development companies signing contracts worth over $4 billion to purchase capacity in Oracle's Gen2 Cloud. He highlighted the advantages of Oracle's RDMA interconnected NVIDIA Superclusters, which train AI models at twice the speed and less than half the cost compared to other clouds.
Analysts have varying opinions on Oracle's stock. Currently, 50% of top-rated analysts rate ORCL as a Strong Buy or Buy, while the remaining 50% see it as a Hold. No analysts recommend or strongly recommend selling the stock. The consensus forecast among analysts is that ORCL's upcoming year will deliver earnings per share (EPS) of $4.66. If these analysts are correct, ORCL's next yearly EPS will be up by 34.6% on a year-over-year basis.
In terms of stock performance, since Oracle's latest quarterly report on September 11, 2023, the stock price has experienced a decline of 10.1%. However, when looking at the year-over-year performance, the stock has seen a significant increase of 62.2%. During this period, Oracle has outperformed the S&P 500, which has only seen a 14.1% increase.
HSBC analyst Stephen Bersey, who initiated coverage on Oracle, is ranked by WallStreetZen in the bottom 14% out of 4,329 Wall Street analysts. Bersey has an average return of -4.1% and a 25% win rate. Their areas of specialization include the Communication Services, Real Estate, and Technology sectors.
Oracle Corporation, founded in 1977 and headquartered in Austin, TX, offers a wide range of software and hardware solutions. The company markets its products through independent software and hardware vendors, system integrators, and resellers. With its strong performance in the cloud market and continued focus on AI technology, Oracle remains a significant player in the tech industry.
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