The Ratings Game: Oracle stock rockets after earnings, but analysts warn of headwinds and tough competitive landscape

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Oracle Corp.’s strong fourth-quarter results on Monday have sent the company’s shares surging, although many analysts see looming macro headwinds and a tough competitive environment for the tech giant.

The software maker enjoyed both a top and bottom line beat on Monday, buoyed by strong fourth-quarter revenue growth, which was up 10% year-over-year in constant currency. This was partly fueled by the firm’s cloud revenue, which was up 22% year-over-year in constant currency.

Shares of Oracle
ORCL,
+8.42%

rose 9.96% to $70.43 Tuesday and the stock was one of the biggest gainers among the 204 equity components in the SPDR S&P Software and Services ETF
XSW,
-0.63%
.

Following the fourth-quarter results Stifel Nicolaus maintained its hold rating on Oracle, but lowered its price target from $83 to $72.

“Oracle posted its strongest top-line growth, 10% CC (constant currency), in more than a decade as license revenue was better than expected,” wrote Stifel’s Brad Reback.

The analyst also noted Oracle management’s belief that the recently completed $28 billion acquisition of healthcare data company Cerner will be immediately accretive to earnings. Although “a solid financial transaction” the Cerner deal is unlikely to significantly move the competitive needle for Oracle, according to Reback.

“We do not believe it fundamentally changes Oracle’s competitive position as the company continues to lose share in its core infrastructure business to the hyperscalers and aggressive, high-growth, modern cloud first vendors,” he wrote.

Monness Crespi Hardt analyst Brian White maintained his buy rating on Oracle but lowered his price target from $126 to $113. Oracle, he wrote, is executing well in an unforgiving environment.

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“However, the economy appears to be on the brink of a recession, the geopolitical landscape is menacing, and the tech tantrum has morphed into tech Armageddon,” he wrote.

Jefferies has a hold rating on Oracle.

“The beat on the top line was driven by license upside and by strength in the database business,” wrote Jefferies equity analyst Brent Thill.

However, he noted the “widening” gap between Oracle’s infrastructure business and Amazon.com Inc.’s
AMZN,
-0.66%

AWS and Microsoft Corp.’s
MSFT,
-0.06%

Azure offerings.

“Oracle is growing more than 5% y/y at a $18 billion run-rate versus AWS CC revenue growth of +37% at a $74 billion run-rate and Azure CC revenue growth of +49% at a $46 billion run-rate,” Thill wrote.

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William Blair maintained its market perform rating on Oracle, citing the firm’s “standout” 10% constant currency revenue growth, which was its highest since 2011.

However, William Blair’s Jason Ader pointed to concerns about potential macro headwinds, integration challenges with Cerner, the tech giant’s debt load and heightened capital expenditures. Ader also highlighted ongoing database share loss, but acknowledged that Oracle had a strong quarter selling database license to software-as-a-service vendors.

Evercore ISI maintained its in-line rating on Oracle, highlighting the company’s strong growth in CRPO [current revenue performance obligation] and first-quarter outlook of 24% to 26% growth in cloud.

“We see Oracle as a relative safe haven in a tough market environment and while digesting Cerner may take a couple of quarters in terms of delivering and rationalizing the revenue base, the core business remains in good shape heading into fiscal 2023,” wrote Evercore ISI’s Kirk Materne.

Cowen reiterated its outperform rating and $98 price target for Oracle. The software maker’s management “exuded a high degree of confidence in pipelines, leading them to guide Cloud growth above our model,” wrote Cowen’s Derrick Wood.

“We are impressed by strong license upside & guidance for organic Cloud growth of 30%+,” the analyst noted.

Of 26 analysts surveyed by FactSet, seven have a buy rating on Oracle and 18 have a hold rating.

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