On Tuesday, CFRA, a research firm, increased its price target for Oracle Corporation (NYSE:ORCL) shares, lifting it to $142 from the previous target of $130, while maintaining a Hold rating on the stock. This adjustment comes after Oracle reported its earnings per share (EPS) for the February quarter at $1.41, surpassing the consensus estimate of $1.38.
The company's sales experienced a 7% increase, which was in line with expectations, primarily driven by a 12% growth in cloud services and license support, accounting for 75% of total sales.
Oracle's recent earnings outperformance has been attributed to the robust expansion in cloud services, including a significant 25% growth stabilization. Infrastructure-as-a-Service (IaaS) saw a remarkable 49% increase, and cloud applications (Software-as-a-Service or SaaS) went up by 14%. CFRA's revised price target is based on a higher price-to-earnings (P/E) ratio of 21 times the firm's calendar year 2025 EPS estimate of $6.75, which is above Oracle's historical average but still below that of its industry peers.
The company's financial position, characterized by a net debt of $78 billion, and the anticipated capital expenditure increase to $10 billion in fiscal year 2025 from the projected $7.5 billion in fiscal year 2024, are significant factors in the analysis. However, CFRA believes that Oracle's growth opportunities within cloud services are on an upward trajectory. The adoption of Generative AI (GenAI) globally is expected to enhance visibility for the company's cloud services offerings.
Oracle's future revenue prospects appear favorable as the company's pipeline, indicated by its rising remaining performance obligations (RPOs), which have increased by 29% to $80 billion, is expanding faster than its revenue. This growth in the pipeline is anticipated to support Oracle's overall growth as the supply of graphics processing units (GPUs) improves, which is essential for cloud computing services.
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