Oracle’s cloud strength, ‘resilient’ revenue, prompt analysts to raise targets

Oracle Corp.’s stock fell following the software giant’s fiscal third-quarter results released late Thursday, although analysts have highlighted strong momentum in the company’s cloud business.

The company’s stock fell 5% before market open Friday after Oracle’s

third-quarter revenue fell about $30 million short of Wall Street’s expectations.

However, Stifel raised its Oracle price target to $84 from $75 Friday, citing the performance of the company’s Cerner health business and its Oracle Cloud Infrastructure offerings. “Given near-term Cerner tailwinds and existing Oracle customers lifting and shifting on-prem workloads to Oracle Cloud, we expect consistent short-term results,” wrote Stifel analyst Brad Reback, in a note released. Stifel has a hold rating for Oracle.

Since June 2022, when Oracle acquired Cerner, the business has increased its healthcare contract base by $5 billion, according to Oracle Chairman Larry Ellison. “While we are pleased with this early success of the Cerner business, we expect the signing of new healthcare contracts to accelerate over the next few quarters,” he said, in a statement Thursday.

Related: Oracle stock falls following forecast as revenue disappoints

In the third quarter, Oracle’s cloud services and license support revenue was $8.92 billion, up from $7.64 billion in the prior year’s quarter. The company’s total revenue was $12.4 billion, up from $10.51 billion in the same period last year.

J.P. Morgan raised its Oracle price target to $93 from $87 Friday. “Overall, we believe Oracle’s resilient, sticky, and largely recurring revenue stream positions the company well to relatively outperform in a post-pandemic environment,” wrote J.P. Morgan analyst Mark Murphy. “We are encouraged by the underlying organic recurring revenue growth and solid organic backlog growth in the recent quarter and believe the cloud shift continues to progress.” J.P. Morgan has an overweight rating for Oracle.

For the fourth-quarter Oracle forecast earnings of $1.56 to $1.60 a share on revenue growth of 15% to 17%, or $13.62 billion to $13.85 billion. Analysts surveyed by FactSet had estimated earnings of $1.47 a share on revenue of $13.75 billion.

Oracle delivered solid results driven by strong cloud revenues ahead of consensus, according to Mizuho Securities analyst Siti Panigrahi, although this was partly offset by softness in on-premise license revenues. “We were Impressed with strong FQ4 guidance which reflects accelerating momentum of cloud business (both OCI and SaaS), giving us more confidence in our thesis that Oracle continues to be one of the more resilient names in software as both OCI and Fusion apps drive growth,” he wrote. “We believe investors may be underestimating Oracle’s potential over the medium-term to generate solid top-line and cash flow growth, and exceed its FY26 targets.”

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Mizuho has a buy rating and $116 price target for Oracle.

Oracle’s stock has risen 6.3% in 2023, outpacing the S&P 500 Index’s

gain of 2.1% and the Nasdaq Composite Index’s

2.3% rise.

Of 33 analysts surveyed by FactSet, 14 have an overweight or buy rating, 17 have a hold rating and two have an underweight or sell rating.

Additional reporting by Wallace Witkowski.