On Wednesday, CFRA, a leading financial research firm, raised the price target for Oracle Corporation (NYSE: NYSE:ORCL) to $150 from the previous $142, while maintaining a Hold rating on the stock. The update follows Oracle's report of its May quarter earnings per share (EPS) of $1.63, which was slightly below the consensus estimate of $1.65.
Despite the miss, Oracle's sales increased by 3%, driven by a substantial 20% growth in cloud services. However, this was partially offset by declines in licenses, hardware, and services.
Oracle's Infrastructure-as-a-Service (IaaS) segment displayed a robust 42% growth, now accounting for 14% of total sales. The company has seen its IaaS run rate double over the past seven quarters, bolstered by significant deals, including more than 30 artificial intelligence sales contracts exceeding $12.5 billion in value. Additionally, Oracle's strategic partnership with OpenAI to train ChatGPT has added credibility to its offerings.
The company's remaining performance obligations (RPO) surged by an impressive 44% to $98 billion, marking a 29% increase from the February quarter. This substantial backlog is expected to support Oracle's target of achieving a 10% growth rate in fiscal year 2025. While applications growth has decelerated to 10%, the company anticipates that headwinds from its Cerner (NASDAQ:CERN) acquisition will diminish.
Oracle's partnership with Google (NASDAQ:GOOGL) Cloud is anticipated to enhance revenue from database services, potentially providing another avenue for growth. Despite plans to double capital expenditures to $14 billion in fiscal year 2025 and a net debt of $76 billion, CFRA predicts that margins and free cash flow will improve due to a greater scale and mix of Oracle Cloud Infrastructure (OCI).
The financial research firm's EPS estimates remain unchanged for fiscal year 2025 (ending in May) at $6.29 and start fiscal year 2026 at $7.08. The target price is based on a price-to-earnings (P/E) ratio of 22 times CFRA's calendar year 2025 EPS estimate of $6.80, which is above Oracle's historical average but below that of its peers.
In other recent news, Oracle Corporation reported a 20% rise in cloud revenue to $5.3 billion in the fourth quarter, although its total revenue of $14.29 billion did not meet analysts' expectations. The company has also signed over $12 billion in artificial intelligence contracts, driven by increased demand for infrastructure. This growth is supported by strategic partnerships with OpenAI, Google Cloud, and a potential collaboration with Elon Musk's xAI to construct a supercomputer by fall 2025.
Analysts from Stifel, Deutsche Bank, and DA Davidson have updated their outlook on Oracle. Stifel increased the company's price target to $135, maintaining a Hold rating, while Evercore ISI raised its price target to $160. Deutsche Bank maintained a Buy rating with a steady price target of $150, and DA Davidson kept a neutral stance with a price target of $105.
InvestingPro Insights
Oracle Corporation (NYSE: ORCL) has demonstrated a commitment to shareholder returns, having raised its dividend for 10 consecutive years and maintained dividend payments for 16 consecutive years. With a market capitalization of $340.49 billion and a dividend yield of 1.29%, Oracle stands out as a prominent player in the Software industry. While the company trades at a high P/E ratio of 31.89, it is important to note that it has been profitable over the last twelve months with a robust gross profit margin of 71.53%.
Investors should be aware that Oracle's short-term obligations exceed its liquid assets, which might warrant closer scrutiny of the company's balance sheet. Additionally, the stock typically exhibits low price volatility, which might appeal to investors seeking stability in their portfolio. For those looking to delve deeper into Oracle's financials and future prospects, InvestingPro offers additional InvestingPro Tips on their platform. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 11 additional InvestingPro Tips that could guide your investment decisions.
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