ORCL - Oracle: EPS Should Be 19.10% Above-Average Consensus To Be 8.4% Undervalued

2024-06-13 21:05:38 ET

Summary

• Previously rated Oracle as a "buy" with an 18.3% upside; the stock has since increased by 8%.
• Oracle's Q4 earnings missed estimates slightly, but the stock surged due to $23.5B in contracts with OpenAI.
• The new fair price estimate is $139.29, prompting a downgrade from "buy" to "hold" with future returns estimated at 9% annually until it reaches the estimated price for 2029 of $214.71.
• Oracle lags behind competitors in PaaS, IaaS, and SaaS with a smaller market share.
• Key risks include Oracle's high debt and the need for continuous price hikes.

Thesis

In my previous article on Oracle Corporation ( ORCL ), I rated the stock as a "buy", because my valuation models indicated that the fair price of the stock was $148.51, which was 18.3% above the stock price at that time of $125.54. My models also suggested a future price for the year 2029 of $234.66, which translates into 17.4% annual returns, which would amply over-perform the overall market.

Oracle reported Q4 2024 earnings on Tuesday, June 11. EPS for FQ4 2024 stood at $1.63, which missed estimates by an insignificant 1.2%. Meanwhile, quarterly revenue of $14.29B, missed estimates by 1.9%. However, despite this miss on estimates, the stock price surged thanks to over 30 contracts worth $12.5B that Oracle signed with OpenAi to train ChatGPT in the Oracle Cloud....

For further details see: