Oracle’s post-earnings slide is ‘one of the greatest overreactions’ Cramer has seen. Here’s his advice on the stock
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The post-earnings sell-off in Oracle (ORCL) is overdone and a clear-cut buying opportunity, Jim Cramer said Tuesday. Shares of the Club holding tumbled more than 12% Tuesday after the business software maker reported mixed fiscal first-quarter results Monday . Oracle’s earnings-per-share topped expectations in the three months ended Aug. 31, but revenues came up slightly short. Management’s sales growth guidance for the current quarter also was light. Still, Oracle delivered robust growth in cloud-computing services, making the stock’s slide Tuesday “one of the greatest overreactions I’ve ever seen,” according to Jim. “I know the stock is going to be down at the end of the day … but we’ve been there. This is a buy,” he added. The Club would add to our position Tuesday, if not for trading restrictions that prevent us from doing so. Oracle, which we added to the portfolio on Aug. 15 , has fallen below our cost basis of $115.80 per share, adding to our desire to capitalize on Tuesday’s weakness. “It’s killing me that we can’t buy,” Jim said, referring to Club rules that prevent the Charitable Trust from trading any stock Jim mentions on CNBC television for the three subsequent trading sessions. A combination of factors is contributing to the magnitude of Tuesday’s sell-off, including elevated expectations in recent weeks after two major Wall Street firms upgraded Oracle shares to buy-equivalent ratings. UBS and Barclays have both touted growth ahead for Oracle’s cloud-computing business, due in large part to further adoption of artificial-intelligence capabilities – a view we also share. Against this increasingly bullish backdrop, Oracle shares rose about 9% over the two past weeks – compared with a 2.5% advance in the S & P 500 – to stretch its year-to-date gains to 55%. For better or worse, that’s the kind of setup that leads to selling and profit-taking in the wake of an imperfect quarter. ORCL YTD mountain Oracle’s year-to-date stock performance. The company’s $28 billion acquisition of electronic medical records firm Cerner has been also been an overhang, a fact on display in Monday night’s results that contributed to the sell-off. Oracle CEO Safra Catz attributed some of Cerner’s weakness to a change in the way its revenue is recognized, as customers shift to buying software subscriptions from licenses. Instead of booking revenues upfront when a license is purchased, revenues will essentially be recognized in intervals over the contract. In any case, Jim said, investors are concluding that Cerner “hasn’t worked out so far,” dampening Oracle’s companywide results. “Anybody who thinks that this is because of a slowdown in the cloud is really a fool,” Jim argued. Indeed, the cloud division’s first-quarter revenue was up 64% year-over-year. Management painted a rosy picture about accelerating commitments from AI-focused customers, which should translate into revenue down the road. We recognize the challenges facing other parts of Oracle’s business, including Cerner and some of its traditional business software offerings. But Monday’s cloud results checked the primary box in our investment thesis. The company remains poised to grow its overall top line at a respectable clip, while its stock is reasonably valued, at around 20 times forward earnings. This mix enables us to view Tuesday’s stock decline as another entry point, rather than a reason to walk out the door. (Jim Cramer’s Charitable Trust is long ORCL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Safra Catz, CEO of Oracle Corporation, rings the opening bell at the New York Stock Exchange (NYSE) in New York City, U.S., July 12, 2023.
Brendan Mcdermid | Reuters
The post-earnings sell-off in Oracle (ORCL) is overdone and a clear-cut buying opportunity, Jim Cramer said Tuesday.
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