Up 6% YTD, What To Expect From Oracle Stock In Q3?

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Oracle (NYSE: ORCL) is scheduled to report its fiscal Q3 2024 results on Monday, March 11. We expect Oracle to edge past the consensus estimates of revenues and earnings. The technology giant posted mixed results in the last quarter, with earnings beating the expectations but revenues missing the mark. It reported total revenues of $12.9 billion – up 5% y-o-y, which was mainly driven by a 12% rise in the cloud services & license support segment. That said, the cloud license & on-premise license category recorded an 18% drop in revenues, followed by an 11% decrease in the hardware division. We expect the Q3 results to be on similar lines (Note – Oracle’s FY’23 ended on May 31, 2023. Q3 FY’24 refers to the quarter that ended on February 29, 2024). Our interactive dashboard analysis on Oracle’s Earnings Preview has more details. 

Amid the current financial backdrop, ORCL stock has seen extremely strong gains of 70% from levels of $65 in early January 2021 to around $110 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. Admirably, ORCL stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 35% in 2021, -6% in 2022, and 29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ORCL see a strong jump?

Our forecast indicates that Oracle’s valuation is $123 per share, which is 3% above the current market price. 

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(1) Revenues to remain just above the consensus estimates

Oracle’s revenues grew 7% y-o-y to $25.4 billion in the first two quarters of FY2024. The growth was primarily due to a 13% increase in the cloud & license revenues, partially offset by a 15% decline in the cloud license & on-premise license and a 9% drop in the hardware divisions. We expect the same trend to continue in Q3. Overall, we forecast Oracle’s revenues to remain around $53.5 billion for FY2024.

Trefis estimates Oracle’s fiscal Q3 2024 revenues to be around $13.38 billion, marginally above the $13.31 billion consensus estimate. 

(2) EPS is expected to marginally beat the consensus estimates

Oracle Q3 FY2024 adjusted earnings per share (Non-GAAP EPS) is expected to be $1.40 per Trefis analysis, slightly above the consensus estimate of $1.38. The net income increased 50% y-o-y to $4.9 billion over the first six months of FY2024. It was primarily due to revenue growth and lower operating expenses as a % of revenues. We expect the same trend to continue in Q3. Overall, Oracle is likely to report an annual GAAP EPS of $4.02 in FY2024. 

(3) Stock price estimate is 3% above the current market price

We arrive at Oracle’s valuation, using a GAAP EPS estimate of around $4.02 and a P/E multiple of just below 31x in fiscal 2024. This translates into a price of $123, which is 3% above the current market price. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

 Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ORCL Return 1% 6% 192%
 S&P 500 Return 0% 6% 127%
 Trefis Reinforced Value Portfolio 0% 5% 643%

[1] Returns as of 3/7/2024
[2] Cumulative total returns since the end of 2016

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