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- Stocks Losing Weight Quickly: Oracle
Stocks Losing Weight Quickly: Oracle
The share price of Oracle Corporation (ORCL), which is the world's second largest software company after Microsoft in terms of both revenue (nearly $50 billion a year) and market caps ($297.5 billion as to the closing price at September 12), suddenly plunged by 13.5% on Tuesday. A show of weakness came as a direct response to the company's own estimates of its future financial results. Its revenue forward guidance signalled an expected sales increase of 5% to 7% for the current quarter, which was falling short of the 8% average estimate of the Wall Street pool of analysts.
Single digits are not enough for a greedy investing crowd anymore, after the stock already climbed about 55% since the beginning of 2023 amid general agitation over generative AI (artificial intelligence). Cloud services demand is still high. Oracle CEO Safra Catz said that the transition of Oracle’s Cerner business to the cloud is “resulting in some near-term headwinds” to the unit’s growth rate. In summer 2022, Oracle closed a $28.2 billion deal to purchase the electronic health record software company, so that customers are still in the process of "moving from licensed purchases, which are recognized upfront, to cloud subscriptions which are recognized ratably,” she detailed the problem. Sales in Oracle’s cloud services and license support segment rose 13%, while sales in the cloud license and on-premises license segment dropped by nearly 10%, missing preliminary estimates.
Even though Oracle’s EPS (earnings per share) of $1.19 topped average estimates of $1.15, also surpassing a $1.03 profit from the same season of 2022, it was a substantially quarterly decline compared to a $1.67 spike in Q1 2023. Oracle now reported its fiscal first-quarter revenue of $12.45 billion, which was basically in line with consensus. Yet, many investors are fearing that its cloud growth may be peaking. So, some analysts including JPMorgan made a decision to downgrade Oracle stock to ‘neutral’ from ‘overweight’. “Oracle deserves credit for its multi-year accomplishments and total recurring revenue growth, but we view a low/mid-20s uFCF multiple as fair for ~8% non-Cerner growth glide path targeted this year, and perhaps mid-single-digit growth in aggregate, with some hurdles emerging in the next several quarters,” JPMorgan analysts wrote. As a result, JPMorgan pushed their price target for Oracle by $12 lower to $100 per share, compared to the current range of between $107 and $112. However, in our opinion, the base scenario could be a temporary drop in Oracle share price by $5-15 below $100, as its 13-week technical support was broken, and the stock already got a strong negative momentum, which may lead to deeper correction.
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