To The Moon

Source: CNBC

$Oracle(ORCL)$ is a computer technology corporation, the third-largest software company in the world by revenue and market capitalization since 2020.

Oracle Corporation offers products and services that address enterprise information technology environments worldwide. Its Oracle cloud software as a service offering includes various cloud software applications. The company also offers cloud-based industry solutions for various industries, Oracle application licenses, and Oracle license support services.

In addition, it provides cloud and licenses business' infrastructure technologies, such as the Oracle Database, an enterprise database; Java, a software development language; and middleware, including development tools and others.

The company conducts three major businesses, for cloud and licensing, hardware, and services, accounting for 84.9%, 7.5%, and 7.6% of total revenue, respectively; the company has implemented an aggressive acquisition program over the years and completed the acquisition of Cerner on June 8, 2022.

Why $Oracle(ORCL)$?

Oracle's Dividend Growth Potential

Oracle is incredibly shareholder friendly, as seen through its sizable dividend increases and share buyback programs in recent fiscal years. The current payout ratio is just 52% using GAAP earnings and 24% using non-GAAP EPS. The company increased the dividend 9 years in a row and has never reduced it since it initiated it 13 years ago. The current yield is low at 1.6%, but there is much room to grow despite the fact that the dividend has almost tripled in the last 10 years.

Source: YCHARTS

Shares Buyback

In addition to dividends, Oracle is returning capital to shareholders via buybacks. These share repurchase programs support EPS growth as they lower the number of shares outstanding. Buybacks are most efficient when the company grows, so they can supplement EPS growth using excess cash. Oracle used its money for buybacks even when it struggled to grow, which is risky as growth may require capital. Still, the company reduced the number of shares outstanding by almost 45% in the last decade, adding significantly to the EPS growth.

Revenue Growth Continues Despite Headwinds

Oracle reported fourth quarter earnings for fiscal 2022 (period ended May 31, 2022) that beat both consensus top and bottom-line estimates. In the fiscal fourth quarter, Oracle’s GAAP revenues grew by 5% year-over-year and were up 10% on a constant currency basis. The firm noted that on a constant currency basis, its cloud revenue grew by 22% year-over-year with infrastructure cloud revenue up 39%, Fusion ERP cloud revenue up 23%, and NetSuite ERP cloud revenue up 30% last fiscal quarter. Please note its sales growth performance on these fronts was modestly lower when not adjusting for foreign currency headwinds (the strong US dollar seen of late has weighed quite negatively on the revenue performance of large domestic enterprises with substantial international sales).

Source: SEC 10-K

Opportunities

Oracle's most important growth opportunity is its focus on the cloud business and refining its offering.

The company offers cloud infrastructure like $Amazon.com(AMZN)$, $Alphabet(GOOG)$, $Alphabet(GOOGL)$, $Microsoft(MSFT)$, and others. It also provides its unique software in cloud-native SaaS versions allowing it to offer a comprehensive solution for many businesses. In the last quarter, cloud infrastructure grew by 36%, and the company intends to keep investing in this high-growth engine.

Another exciting move by Oracle is the acquisition of Cerner for $28.3B.

Cerner supplies health information technology services, devices, and hardware. While Oracle may struggle to compete with the cloud giants, this acquisition will make offering a specific comprehensive solution for healthcare facilities easier.

Source: Cerner.com

Risks

Strong Competition

Oracle has a tiny 2% market share in the cloud business that it intends to grow. The three largest cloud providers, Amazon, Microsoft, and Alphabet, own roughly two-thirds of the market. Therefore, it may be very challenging for Oracle to turn into a leading provider.

Recession in Short Term

If we see a recession, fewer investments will be made by possible clients. Therefore, we will see slower cloud adoption, and the current forecasted growth rate may decline as growth will require more time.

The Higher Debt Level

Oracle acquiring Cerner is just one example of a transaction that required raising debt. The debt to equity level is higher than 3, and it will limit the company's ability to keep growing using acquisitions. Moreover, the company will also have to deal with higher interest expenses as the Federal Reserve raises interest rates.

What Do Analysts Think?

Analyst Valuentum states, "Oracle has an attractive business model that drives dependable recurring revenue streams. Management is incredibly shareholder friendly, returning gobs of cash back to investors via share repurchases and meaningful per share dividend increases. Its cloud-oriented operations have started to gain some real traction, and we're expecting that increased visibility and strong free cash flow generation will lead to robust dividend growth going forward."

Analyst Khen believes, "Oracle offers investors a wide range of could services. From the infrastructure to SaaS applications that work on top of the infrastructure. There are also several risks, mainly the fierce competition in the cloud arena. However, at 15 times forward earnings, I believe there is enough margin of safety, and the market will reward any contentious growth story. Therefore, it's a BUY."

Do you know any other dividend growth stock? 

Leave your ideas in the comment section~

Source: 

https://seekingalpha.com/article/4539338-take-a-look-at-oracle-stock-ahead-of-its-earnings-update

https://seekingalpha.com/article/4535943-oracle-dividend-growth-stock-your-portfolio-needs