While an expected 25-bps hike in interest rates today would put further pressure on stressed margins of various tech businesses scrambling to survive profitably amid high borrowing costs, Oracle Corporation (ORCL) is making it look exceptionally easy.
ORCL offers services and products tailored to the needs of enterprise IT environments worldwide. The company directly offers its license, cloud, hardware, services, and support to businesses in various industries, educational institutions, and government agencies.
Over the past three years, ORCL’s revenue has grown at a 5.2% CAGR. During the same period, the company also registered EBITDA and total asset growth of 4.3% and 9.3%, respectively.
The stock has gained 6.7% over the past month and 14.2% over the past six months to close the last trading session at $88.46, above its 50-day and 200-day trading averages of $83.37 and $75.10, respectively.
Let’s closely examine the factors that make it worthy of investment.
Solid Financials
For the second quarter of the fiscal year 2023 ended November 30, 2022, ORCL’s total revenue increased 18.5% year-over-year to $12.28 billion, powered by our infrastructure and applications cloud businesses that grew 59% and 45%, respectively, in constant currency.
During the same period, ORCL’s non-GAAP operating income increased 4.8% year-over-year to $5.09 billion, while its non-GAAP net income came in at $3.31 billion or $1.21 per share.
ORCL’s total assets stood at $128.47 billion as of November 30, 2022, compared to $109.30 billion as of May 31, 2022.
Optimistic Analyst Estimates
Analysts expect ORCL’s revenue and EPS for fiscal 2023 to increase 17.5% and 0.1% year-over-year to $49.85 billion and $4.91, respectively. Revenue and EPS are expected to increase by a further 7.5% and 13.7% during the next fiscal to $53.58 billion and $5.58, respectively.
Attractive Dividend Payout
On January 24, ORCL paid its quarterly cash dividend of $0.32 per share. The annual dividend payout amounts to $1.28, translating to a forward yield of 1.45% at the current price, compared to the 4-year average dividend yield of 1.59%.
The company’s dividend payouts have grown for eight consecutive years. Over the past five years, its dividend payouts have grown at an 11% CAGR.
Outstanding Profitability
ORCL’s trailing 12-month gross profit margin of 76.1% is higher than the industry average of 49.19%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 39.88% and 19.09% comfortably exceed the respective industry averages of 11.22% and 3.28%.
Additionally, ORCL’s trailing-12-month ROTC and ROTA of 11.61% and 6.85% compare to the respective industry averages of 3.05% and 1.47%.
POWR Ratings Reflect Robustness
ORCL’s steady fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has an A grade for Sentiment, consistent with optimistic analyst estimates.
It has a B grade for Stability, in sync with its beta of 1.
ORCL ranks #28 of 138 stocks in the Software - Application industry.
Click here to see the additional POWR Ratings for ORCL’s Growth, Value, Quality, and Momentum.
Bottom Line
With the acquisition of Cerner Corporation (CERN) on June 7, 2022, ORCL has added an entirely new dimension to its suite of offerings and is on the cusp of redefining the future of a sector as fundamental as healthcare. While CERN has already contributed $1.5 billion to ORCL’s total revenues, the company has just begun scratching the surface in this promising direction.
ORCL aims to modernize healthcare information systems to fully automate clinical trials to shorten the time it takes to deliver lifesaving new drugs to patients, enable doctors to easily access better information leading to better patient outcomes, and provide public health professionals with an early warning system that locates and identifies new pathogens in time to prevent the next pandemic.
In addition, robust financials, capital discipline, income generation track record, and optimistic prospects make it a wise investment for solid risk-adjusted returns in 2023.
How Does Oracle Corporation (ORCL) Stack up Against Its Peers?
While ORCL has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its A-rated industry peers: Commvault Systems, Inc. (CVLT), Progress Software Corporation (PRGS), and IBEX Limited (IBEX).
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ORCL shares were trading at $88.96 per share on Wednesday afternoon, up $0.50 (+0.57%). Year-to-date, ORCL has gained 9.24%, versus a 5.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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