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Oracle's Growth Prospects Challenged Despite Increased Interest in Solutions

By Don Francis, Editor
September 26, 2023 7:20 AM UTC
Oracle's Growth Prospects Challenged Despite Increased Interest in Solutions

BMO Capital's Keith Bachman lowered their price target on Oracle (NYSE: ORCL) by 1.5% from $132 to $130 on September 25, 2023. The analyst maintained their Hold rating on the stock.

Attendance at the recent Oracle Cloud World event saw a significant increase of 20%, indicating a growing interest in the company's solutions, according to Bachman. However, despite management's promising near-term and longer-term targets, the analyst expressed skepticism about Oracle's ability to accelerate revenue. Bachman cautioned that there are still unanswered questions regarding Oracle's durable database revenue growth potential, despite being "more constructive" on the company's Enterprise Resource Planning, Human Capital Management, and Supply Chain Management growth.

Oracle recently reported its financial results for Q1 2024. The company's earnings per share (EPS) of $1.19 surpassed the Zacks Consensus Estimate by 4.39% and showed a 15.5% increase compared to Q1 2023's $1.03. Additionally, Oracle's revenue of $12.5 billion was in line with the Zacks Consensus Estimate and represented an 8.8% growth from Q1 2023's $12.45 billion. The company also reported cloud revenue of $4.6 billion, reflecting a 30% year-over-year increase.

Looking ahead to Q2 2024, Oracle's management has provided guidance. They anticipate EPS growth of 7% to 11%, revenue growth of 5% to 7%, and cloud revenue growth of 29% to 31%. CEO Safra Catz highlighted the significant growth in Oracle Cloud Infrastructure revenue during Q1, outpacing their hyperscale cloud infrastructure competitors. Catz emphasized the predictability and profitability of Oracle's recurring revenue stream, which contributed to a 16% growth in non-GAAP earnings per share, a 21% growth in free cash flow, and $7.0 billion in operating cash flow during the quarter.

Chairman and CTO Larry Ellison discussed the potential impact of Generative AI, referring to it as possibly the most important new computer technology ever. Ellison highlighted the significant investments being made in AI and the growing interest in Oracle's Gen2 Cloud, which has already secured contracts worth over $4 billion in AI capacity. He emphasized the superiority of Oracle's RDMA interconnected NVIDIA Superclusters in training AI models, noting their efficiency and cost-effectiveness.

Analyst sentiment towards Oracle remains positive, with 52.9% of top-rated analysts rating ORCL as a Strong Buy or Buy. Another 47.1% see it as a Hold, while no analysts recommend selling the stock. The consensus forecast among analysts suggests that ORCL's upcoming year will deliver earnings per share (EPS) of $4.66, indicating a 34.6% increase 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 decreased by 14%. However, on a year-over-year basis, the stock has shown a significant increase of 65.1%. During this period, Oracle has outpaced the S&P 500, which has only seen a 15.4% increase.

Keith Bachman, the BMO Capital analyst responsible for the recent rating update, is ranked in the top 4% out of 4,337 Wall Street analysts by WallStreetZen. With an average return of 6.6% and a 56.5% win rate, Bachman specializes in the Consumer Defensive, Consumer Cyclical, and Technology sectors.

Oracle Corporation, founded in 1977 and headquartered in Austin, TX, offers a range of software and hardware solutions. The company markets its products through independent software and hardware vendors, system integrators, and resellers.

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