Oracle stock jumps after Goldman upgrades following 'solid' Q4 results
Chaay_Tee
Oracle (NYSE:ORCL) stock rose ~6% premarket on Tuesday after Goldman upgraded the shares to Neutral from Sell following the Texas-based tech giant's Q4 results.
Meanwhile, Citi, BofA Securities, Barclays Capital and Stifel upped their price targets on Oracle.
Goldman analysts said they were upgrading Oracle to Neutral after a solid Q4 print and Q1 guidance which removed concerns key to the Sell thesis. The Sell rating view had centered mainly on increasing CapEx requirements to sustain growth in Gen2 OCI (while also diluting gross margin) and unabating market share losses in the Oracle’s core database business.
The analysts noted that since they added Oracle to the Sell List on June 27, 2022 the stock is 45.9% versus the S&P500 0.3%.
Coming off the Q4 print, the firm was encouraged by the step-up in IaaS revenue growth to +77% (CC) versus high-50's from Q1-Q3 which it took it as a signal that Oracle's advertised price/performance advantage versus the Hyperscalers is resonating with the market (both net new and existing customers), which should position the company for durable share gains in spite of its late entry in IaaS.
The analysts said that Oracle also guided to almost flat CapEx in F24 (after doubling spend in F22/23), suggesting a more efficient capital spending relative to GSe even amid robust demand for Gen2 OCI (inclusing $2B in capacity commitments from AI companies) which indicates to improving FCF generation exiting fiscal '23.
The firm noted that due to Oracle's solid performance in SaaS/ERP (back-office +24% CC), accelerating growth in IaaS, and a longer-term opportunity to convert on-premise database customers to the cloud, it is increasingly constructive on Oracle's ability to deliver on its fiscal '26 revenue target of $65B.
However, the analysts prefer to remain on the sidelines as they believe Oracle's valuation now appropriately reflects accelerating top and bottom-line growth at 30x F25E FCF (in-line/above large-cap peer).
Citi:
Citi raised its price target on Oracle's (ORCL) shares to $121 from $106.
Citi analysts said that Q4 results saw a very modest top/bottom line beat, but showed an inflection in OCI cloud revenue with growth accelerating 20pts, clearing expectations, with Q1/FY24 cloud outlook ahead of consensus.
The firm believes that the results show that Oracle's (ORCL) Gen2 Cloud service is providing the company with idiosyncratic and accelerating growth tailwinds, led by unique architecture and GenerativeAI relationships which provide contrast to the optimization backdrop of consumption peers.
BofA Securities:
BofA Securities reiterated its Neutral rating and but upped its price target on Oracle's shares to $132 from $112. The firm noted that the company's Cloud service is accelerating on OCI strength, however license miss suggests growth is not additive.
The firm added that while Oracle is showing signs of higher growth with its SaaS applications and Cloud Infrastructure via the Generation 2 release, the cloud transition is taking longer than anticipated to impact the numbers and is more than offset with larger legacy and low growth revenue segments, such as on-premise license, hardware, and more.
Stifel:
The firm sees Oracle as a continued beneficiary of the proliferation of AI workloads, however, this cause some challenges for margins with heightened level of investment needed to keep capacity ahead of demand.
Given AI tailwinds and existing customers continuing to lift and shift on-prem workloads to OCI, the firm expects consistent short-term results and raised its price target on Oracle's shares to $120 from $84.
Barclays Capital:
The firm maintained an Equal Weight rating but raised its price target on ORCL to $126 from $113.