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Oracle stands to benefit from interest in value stocks, the analyst wrote.
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Oracle
he is in the midst of changing his business to the cloud, as Barron’s described in a recent cover story. For stock skeptics, the question is how long that process will take.
Evercore ISI analyst Kirk Materne addressed that issue on Monday, resuming coverage on Oracle (ticker: ORCL) with an In Line rating and a $ 66 price target. On Monday afternoon, Oracle stock was flat at $ 66.27, while the S&P 500 was up 0.9%.
Materne agreed with the basic premise of our article: Oracle is moving more business to the cloud. That includes both revised versions of its enterprise application software (specifically Fusion ERP, financial software for larger companies, and NetSuite ERP, finance for smaller companies), and emerging cloud business with Oracle Cloud Infrastructure.
“The good news is that we believe Oracle has a strong position in the applications market and we expect this industry to begin to see more steady growth in the numbers ahead,” he wrote.
But Materne also said “the sheer size of Oracle’s database business will move further into the industry’s infrastructure.” He worries whether the company can expand its margins, or whether the only key drivers of earnings per share are just revenue growth and stock purchases.
“Overall, the results of our survey indicate that Oracle is becoming more relevant in the cloud market over time,” he said. With stock trading at 13 times the earnings per share expected for the 2022 calendar, and 17 times free cash flow, “the downside risk is limited,” he said.
But Materne said he would like to see “more evidence that the move to Database Autonomy,” the cloud-based version of its well-known database software, “leads to license revenue. new, and more importantly, strengthening support revenue, which is an integral part of Oracle’s earnings / cash flow. ”
The bottom line, he says. Is that “in a world where upward pressure on interest rates will focus more investors on value ideas, Oracle is likely to be a good source of value, but we believe that ‘re-rate’ will more important time. ”
Write to Eric J. Savitz at [email protected]