Oracle: Q3 Earnings, What You Need To Know

Oracle: Q3 Earnings, What You Need To Know

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Oracle ( ORCL ) is expected to finish fiscal 2022 on a high. At first, the market sold off on the back of its Q3 earnings results, but once investors started to understand the nuance of Oracle’s guidance, investors were quick to bid up the shares.

The stock isn’t the most exciting in terms of top-line growth, but what at its lacks in excitement on the top-line, it more than makes up with its stalwart bottom-line profitability.

In a time when growth stocks are so dramatically out of favor with investors, could it be the case that value investing hasn’t died? Investors Reward a Good Profit-Story

Data by YCharts Unlike other tech names, particularly mid and small-cap tech stocks, Oracle has seen its share price fall just 15% in the past several months. Indeed, keep in mind that many tech names have seen their share prices collapse 50% to 80% in the past 3 months. So why such a discrepancy?

The reason is that Oracle is making strong cash flows today. It’s not a story that may or may not make strong cash flows in the future. With that in mind, there are a lot of nuances that are required here. Revenue Growth Rates, Ticking Along

Oracle revenue growth rates As noted in the introduction, Oracle hasn’t got the most exciting topline growth prospects. And that’s probably why the stock hasn’t meaningfully sold off in the past 3 months. The reason that it’s a ”boring” stock, is the reason why it held its ground.

As we look ahead to Q4 2022’s guidance, at the high end, on a GAAP basis revenues are expected to be up 5% y/y. Note, this guidance doesn’t factor in Oracle’s massive acquisition of Cerner ( CERN ). Why Oracle? Why Now?

Oracle is a software maker for enterprises. During its earnings call yesterday, we heard more about Oracle’s recent moves into healthcare.

As has been widely reported, Oracle is leaning in on its Enterprise Resource Planning (”ERP”) and Human Capital Management (”HCM”) platforms to embrace its healthcare ambitions.

Oracle contends that healthcare is a vertical in need of massive disruption. In fact, Oracle’s co-founder, Larry Ellison believes that Oracle’s Human Capital Management systems could be well set up to help hospitals recruit, track, schedule, and pay for their health professionals.

Moreover, Oracle is laying down the foundation so that when Cerner’s acquisition completes, Cerner can rapidly gain traction inside Oracle and be immediately accretive to Oracle’s financials.

Ellison bullishly asserts that ”we’re going after the entire integrated ecosystem, and we’re having some great results. Obviously, that influenced our decision to buy Cerner”.

Ellison goes on to argue that healthcare is much more than just providing people with care. Oracle’s opportunity in healthcare will come from medical device manufacturers, pharmaceutical companies, insurance companies, and government agencies, to name a few.

Again, what distinguished Oracle from many new-age HCM and ERP companies is that Oracle has learned over time that investors value more a ”show-me story” rather than a highfalutin narrative. Oracle is Highly Cash Flow Generative

For the trailing 9 months of 2022 non-GAAP EPS was up $3.37, up 7.0% from the same period a year ago at $3.15.

Then, during the earnings call, the guidance for Q4 2022 was stated to be approximately $1.44 (at the high end). This implies that compared with the prior year, non-GAAP EPS for the upcoming quarter will be down approximately 6%, and I suspect that was part of the reason for the initial sell-off on the stock, after hours.

However, when investors were explained that the slight drop in non-GAAP EPS in Q4 2022’s guidance was more to do with the drop in the share price of Oracle’s portfolio of investments, investors took notice.

Oracle stated that the core cloud business has been performing strongly with its performance being masked by investment gains from last year turning into losses, thus the market was quick to rally behind Oracle’s stock.After all, the market is much keener to reward core organic growth of a business as that increases the terminal value of the business, rather than having to price in investment gains in the portfolio.Altogether, this implies that for fiscal 2022 Oracle is expected to report approximately $4.81 in non-GAAP earnings per share. ORCL Stock Valuation — Reasonably Priced If we look ahead to fiscal 2023 and assume that Oracle’s bottom line EPS numbers increase in the high single-digits we could reasonably expect $5.20 of non-GAAP EPS next year.This implies that the stock is now priced at […]

source Oracle: Q3 Earnings, What You Need To Know

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