Oracle’s upcoming quarterly results offer the stock a chance to exit Wall Street’s penalty box
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Investors banished Oracle to the penalty box in September after disappointing fiscal 2024 first-quarter results and guidance. Upcoming quarterly results Monday evening may be what the enterprise software and emerging cloud giant needs to skate free. Oracle is expected to post revenue of $13.05 billion in the three months ended Nov. 30, according to a consensus of analyst estimates compiled by LSEG, representing 6.3% year-over-year growth. Analysts see the company’s earnings-per-share increasing 9.1% from the year-ago period to $1.32 in its fiscal 2024 second quarter. “Oracle failed to beat expectations last time, a highly unusual occurrence,” Jim Cramer said Friday. “It would be shocking for them to miss a second time in a row.” Oracle’s fiscal Q1 revenue and guidance failed to clear Wall Street’s sky-high bar after the closing bell on Sept. 11, sending shares plunging 13.5% the next day to $109.61 each. At the time, Jim called the stock’s move a major overreaction. Still, additional declines persisted into October, before shares bottomed on Oct. 3 at $104.52 apiece. Oracle stock has narrowly underperformed the S & P 500 since then. In the session before September’s report, Oracle shares had closed at an all-time high of $126.71 each. At nearly $113 per share Friday, the stock still needs about 12% more upside to return to its old highs. In the wake of September’s selloff, we’ve bought Oracle stock five times, most recently on Nov. 1 at roughly $105 per share . ORCL YTD mountain Oracle’s stock performance so far in 2023. The performance of Oracle’s cloud-computing division — known as Oracle Cloud Infrastructure, or OCI — will be a key focus in Monday’s earnings report. OCI is an important growth driver for the legacy tech firm as spending on artificial intelligence booms, requiring more computing power to handle AI tasks. It’s a significant reason why some investors, including us at the Club, bought stakes in the company this year . Oracle CEO Safra Catz told Jim in September that OCI has “so much demand that we just keep booking it.” She added, “In fact, in the first week of this quarter, we booked another billion and a half just in AI workloads.” Oracle’s fast-growing cloud business is smaller than rival services offered by fellow Club holdings Amazon , Microsoft and Alphabet , but its ability to attract customers has been aided by Oracle’s close relationship with Nvidia , the dominant AI chipmaker. Despite Club name Nvidia’s supply constraints this year, Oracle has secured a relatively healthy amount of its cutting-edge AI processors. In fact, when Microsoft needed more compute capacity for its Bing AI services, it turned to Oracle and i n November struck a multiyear deal to use OCI in addition its own Azure cloud. For the fiscal second quarter, “OCI growth expectations appear achievable based on ramping capacity and signs of increasing customer activity,” Morgan Stanley wrote in a note to clients Thursday. The analysts expect OCI revenue growth to be 59% in the second quarter compared with 72% in the September report. In general, Morgan Stanley analysts said they remain uncertain about the long-term durability of OCI’s growth, which figures into their hold-equivalent rating on Oracle’s stock and $107-per-share price target. The Club’s price target is $130, and we have a buy-equivalent 1 rating on the stock. The health of Oracle’s Cerner division — a factor behind the September selloff — is a lingering question heading into Monday evening’s release. In September, Oracle issued weak quarterly guidance for electronic medical records firm, which was acquired for $28 billion acquisition in June 2022. It represents about 12% of companywide revenues, according to UBS estimates. At that time, management said a change in the way Cerner revenue is recorded — shifting to software subscriptions from licenses — was weighing on its financial contributions. “We believe Cerner will continue to be a drag for some time, but F2Q should be the bottom,” Guggenheim wrote in a note Thursday. The analysts have a buy rating and $150-per-share price target on Oracle. The stock also carries their “best idea” designation. “Oracle is not immune to the macro backdrop – no one is – but partner checks indicated a surprising resiliency in this business relative to others,” Guggenheim said. (Jim Cramer’s Charitable Trust is long ORCL, NVDA, AMZN, MSFT and GOOGL. 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. 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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
Investors banished Oracle to the penalty box in September after disappointing fiscal 2024 first-quarter results and guidance. Upcoming quarterly results Monday evening may be what the enterprise software and emerging cloud giant needs to skate free.
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