Up 14% YTD, How Will Oracle Stock Trend After Q4 Results?

-7.32%
Downside
140
Market
130
Trefis
ORCL: Oracle logo
ORCL
Oracle

Oracle (NYSE: ORCL) stock has gained 14% YTD as compared to the 11% rise in the S&P 500 index. Notable, its peer Salesforce (NYSE: CRM) stock was up 10% over the same period. ORCL is scheduled to report its fiscal Q4 2024 results on Tuesday, June 11. We expect the company to top the consensus estimates of revenues and earnings. The technology giant outperformed the street estimates in the last quarter, with total revenues increasing 7% y-o-y to $13.3 billion. It was mainly because of a 12% growth in the cloud services & license support revenues, somewhat offset by a 3% decrease in the cloud license & on-premise license unit. We expect the Q4 results to be on similar lines (Note – Oracle’s Q4 FY’24 refers to the quarter that ended on May 31, 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 85% from levels of $65 in early January 2021 to around $120 now, vs. an increase of about 40% 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 $130 per share, which is 8% 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 $38.7 billion in the first three-quarters of FY2024, mainly due to a 12% rise in the cloud services & license support revenues. However, it was somewhat offset by an 8% decline in the hardware unit and an 11% drop in the cloud license & on-premise license business. We expect the same momentum to continue in Q4. Overall, we forecast Oracle’s revenues to remain around $53.46 billion for FY2024.

Trefis estimates Oracle’s fiscal Q4 2024 revenues to be around $14.78 billion, marginally above the $14.59 billion consensus estimate.

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

Oracle Q4 FY2024 adjusted earnings per share (Non-GAAP EPS) is expected to be $1.69 per Trefis analysis, 2% above the consensus estimate of $1.65. The net income improved 41% y-o-y to $7.3 billion over the first nine months of FY2024. It was partly due to revenue growth and partly because of lower operating expenses as a % of revenues. We expect the fourth quarter results to be on similar lines. Overall, Oracle is likely to report an annual GAAP EPS of $4.01 in FY2024.

(3) Stock price estimate is 8% above the current market price

We arrive at Oracle’s valuation, using a GAAP EPS estimate of around $4.01 and a P/E multiple of just above 32x in fiscal 2024. This translates into a price of $130, which is 8% 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 Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ORCL Return 2% 14% 212%
 S&P 500 Return 0% 11% 136%
 Trefis Reinforced Value Portfolio -1% 4% 634%

[1] Returns as of 6/5/2024
[2] Cumulative total returns since the end of 2016

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