Oracle's earnings were liked by analysts, even by those who don't love the stock

MW Oracle's earnings were liked by analysts, even by those who don't love the stock

By Tomi Kilgore

More than a dozen analysts raised their stock-price targets, as dollar strength was the reason for the earnings miss, not slowing demand

Shares of Oracle Corp. may be on track to suffer their worst day in a year, but while investors were disappointed in the business software giant's latest earnings report, Wall Street analysts generally struck a more positive tone.

The stock $(ORCL)$ sank 6.7% in premarket trading, which put it on track for the biggest one-day decline since it tumbled 12.4% on Dec. 12.

The selloff comes after the stock climbed to an all-time intraday high of $198.31 early in Monday's sessions, before pulling back and closing the day down 0.7% at $190.45 ahead of fiscal second-quarter results.

The take from analysts was that while profit and revenue did come up a bit short of consensus expectations, it was the fault of the U.S. dollar, which has seen a "dramatic" rally in recent months - and not because of slowing demand.

Read: Oracle's roaring stock rally cools as latest results fail to live up to the hype.

The U.S. Dollar Index DXY, which measures the dollar against a basket of currencies of the U.S.'s largest trading partners, had surged 4% during Oracle's latest quarter. If the dollar hadn't moved since the company provided guidance about the current quarter in early September, profit and revenue would've beaten expectations.

See related: It's time to sell the U.S. dollar, Morgan Stanley says.

Even analysts who believe the stock may be overvalued, after it ran up 22% over the past three months and more than 80% this year, were generally upbeat.

J.P. Morgan's Mark Murphy, who kept his rating on the stock at neutral at his Street-low price target of $140 - implying 26.5% downside from Monday's close - said that, if you take out the effect of the dollar's strength and unfavorable tax-rate factors, the results "look healthier and relatively more on track."

Murphy said comments from the company about order backlogs - such as the expectation that a lot of capacity will come on line in the second half of 2025 - were "bullish" because they implied that the capacity constraints that have been hurting revenue should wane and large contract activity should pick up.

"We are encouraged by the underlying organic recurring revenue growth trend and believe the cloud shift continues to progress," Murphy wrote in a note to clients.

Of the 38 analysts surveyed by FactSet who cover Oracle, 14 have raised their stock price targets while none have lowered them.

D.A. Davidson's Gil Luria, another analyst not too keen on Oracle's stock, cheered that revenue growth from the previous quarter continued to accelerate, amid strength in AI compute demand. He was also upbeat on Oracle's outlook, as growth in the company cloud infrastructure pipeline is also accelerating, and with contract signings expected to ramp up in the second half of 2025.

Luria raised his stock price target, to $150 from $140, but his new target implied 21% downside from Monday's close. He kept his rating at neutral.

Meanwhile, Mizuho analyst Siti Panigrahi kept his rating at outperform while raising his stock price target to $210 from $185, with the new target implying 10% upside, as "robust AI-related demand continues to outstrip supply."

Oracle's plan for capital expenditures in fiscal 2025 to be double that of the prior year should help alleviate that problem.

"To address supply constraints, Oracle is aggressively expanding its capacity, with additional resources expected to come online by late Q3," Panigrahi wrote.

"With Oracle expanding both supply capacity and cloud regions, we expect strong [Oracle Cloud Infrastructure] growth which should be (in our view) the most important catalyst that drives shares to re-rate," he added.

Oracle's stock has rallied 80.6% year to date through Monday, while the SPDR S&P Software & Services ETF XSW has advanced 34.6% and the S&P 500 index SPX has gained 26.9%.

-Tomi Kilgore

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December 10, 2024 08:48 ET (13:48 GMT)

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