Oracle (NYSE:ORCL) delivered mixed Q3 financial results. Revenues of $10.51 billion came in line with the Street’s projections. However, earnings of $1.13 fell short of the consensus estimate of $1.18 due to the share price declines of its equity investments.
Now What?
Looking ahead, Oracle sees continued momentum in its core cloud business and expects revenues to increase by 3-5% in Q4. However, strong investment gains in the prior year will likely weigh on the Q4 earnings this year. Thus, Oracle expects its adjusted earnings to decline on a year-over-year basis.
Highlighting the ongoing momentum in the cloud business, growth opportunities in the healthcare segment, and strong relationship with TikTok, Monness analyst Brian White recommended a Buy on Oracle stock.
He views Oracle as an attractive investment to capitalize on the shift towards the cloud. White stated, “Oracle offers investors a high-quality, value play with the opportunity to participate in an attractive cloud transformation.”
Further, White expects the Cerner acquisition to be accretive to Oracle’s adjusted earnings in the first year. Oracle recently announced the acquisition of Cerner and expects the deal to close soon.
It’s worth noting that the acquisition will fortify Oracle’s offerings in the healthcare vertical. Oracle’s CEO Safra Catz stated, “Healthcare is the largest and most important vertical market in the world,” and the addition of “Cerner will be a huge additional revenue growth engine for years to come.” Catz expects the deal to contribute significantly to its earnings.
While White is upbeat about Oracle’s prospects, Piper Sandler analyst Brent Bracelin downgraded ORCL stock to a Sell from a Hold. Bracelin highlighted Oracle’s revenue mix (total cloud revenues still accounting for only about 27% of revenues) and remains skeptical about Oracle’s future organic revenue growth.
Overall, Wall Street is cautiously optimistic about ORCL stock. It has a Moderate Buy consensus rating on TipRanks based on 6 Buy, 12 Hold, and 1 Sell recommendations. Further, the average Oracle price target of $93.94 implies 20.7% upside potential to current levels.
Conclusion
Oracle’s revenues could continue to gain from the growth in its cloud business. Moreover, the Cerner acquisition will likely boost its top and bottom line. However, the cloud business’s contribution to overall revenues is still low. Further, the current geopolitical environment is a concern, while sector-wide valuation compression could restrict the upside.
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