Oracle Stock Jumped 13% In One Day, What’s Next?

+0.76%
Upside
139
Market
140
Trefis
ORCL: Oracle logo
ORCL
Oracle

Oracle’s stock (NYSE: ORCL) price jumped approximately 13% on 12th June, as compared to the 1% rise in the S&P500 index. In sharp contrast, Oracle’s peer Adobe (NASDAQ: ADBE) was down 1% over the same period. The spike in the ORCL stock price came after the company declared fourth quarter FY2024 (June-May) results. It provided better-than-expected financial guidance for FY 2025 and announced partnership deals with Microsoft, Open AI, and Google, which boosted investor confidence in the stock. Notably, ORCL missed the consensus estimates of revenues and earnings in the fourth quarter. Overall, at its current price of $140 per share, it is trading at the same level as its fair value – Trefis’ estimate for Oracle’s valuation

Amid the current financial backdrop, ORCL stock has seen extremely strong gains of 115% from levels of $65 in early January 2021 to around $140 now, vs. an increase of about 45% 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 AVGO, 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?

The technology giant posted total revenues of $14.3 billion in Q4 2024 – up 3% y-o-y. It was because of a 9% rise in the cloud services & license support revenues, partially offset by a 15% decrease in the cloud license & on-premise license category. On the cost front, the operating expenses marginally decreased in the quarter, leading to a 13% increase in the operating income to $4.69 billion.

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The top line grew 6% y-o-y to $52.96 billion in FY 2024, primarily due to a 12% gain in the cloud services & license support revenues. However, it was somewhat offset by a 12% decline in the cloud license & on-premise license unit, a 6% drop in the hardware revenues, and a 3% decrease in the services division. In terms of costs, total operating expenses increased 2% y-o-y. Overall, the net income improved 23% y-o-y to $10.47 billion.

Moving forward, the company expects Q1 FY2025 Non-GAAP earnings to remain between $1.33 – 1.37. Altogether, Oracle revenues are estimated to touch $57.7 billion in FY2025. Further, ORCL’s net income margin is likely to improve in the year. It will lead to an annual GAAP EPS of $4.41, which coupled with a P/E multiple of just below 32x will lead to a valuation of $140.

 Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 ORCL Return 20% 33% 265%
 S&P 500 Return 3% 14% 142%
 Trefis Reinforced Value Portfolio 3% 7% 660%

[1] Returns as of 6/13/2024
[2] Cumulative total returns since the end of 2016

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