Is Oracle Stock Fairly Priced?

+42.45%
Upside
71.66
Market
102
Trefis
ORCL: Oracle logo
ORCL
Oracle

Oracle’s stock (NYSE: ORCL) has lost approximately 9% YTD as compared to the 6% drop in the S&P500 index over the same period. Further, at its current price of $79 per share, it is trading a 22% below its fair value of $102 – Trefis’ estimate for Oracle’s valuationThe technology giant missed the consensus estimates for earnings in the third quarter of FY2022 (FY June-May), while the revenues edged past the mark. It posted total revenues of $10.5 billion – up 4% y-o-y. It was driven by a 5% increase in the cloud services and license support revenues, followed by marginal growth in the cloud license and on-premise license revenues. That said, the net income decreased 54% y-o-y to $2.3 billion. The main reason behind it was an increase in non-operating expenses and higher income tax in the quarter. Notably, the company received an income tax benefit of $1.7 billion in Q3 2021. 

The company’s total revenues increased 4% y-o-y to $40.5 billion in FY 2021, mainly driven by a 5% growth in the cloud services and license support segment. It translated into a 36% increase in the net income to $13.7 billion. Notably, the relatively higher increase in the net income was due to a one-time net tax benefit related to the transfer of certain assets between subsidiaries in Q3 2021. Further, the firm posted cumulative nine months revenues of $30.6 billion in FY2022 – up 5% y-o-y, primarily because of higher revenues in cloud services and license support division. Despite the growth in the top line, the cumulative nine-month net income was down 64% y-o-y to $3.5 billion. This was due to an increase in expenses as a % of revenues from 64% to 79%, led by a significant jump in acquisition-related and other costs. In addition, the one-time income tax benefit received in the same period last year also weighed on the profitability figures. The fourth-quarter results are likely to be on similar lines as the recent quarters. We expect the revenues to see low single-digit growth on a year-on-year basis, while the earnings are likely to remain below the previous year’s levels. 

Altogether, Oracle revenues are expected to touch $42.4 billion in FY2022 and $44.3 billion in FY2023. Further, ORCL’s net income margin is likely to remain around 32.8% in FY2023. It will likely result in a net income of $14.5 billion and an annual EPS of $5.55. This coupled with a P/E multiple of just above 18x will lead to the valuation of $102.

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Here you’ll find our previous coverage of Oracle stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 ORCL Return -4% -9% 107%
 S&P 500 Return -2% -6% 99%
 Trefis Multi-Strategy Portfolio -4% -12% 248%

[1] Month-to-date and year-to-date as of 4/22/2022
[2] Cumulative total returns since the end of 2016

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