Oracle Stock To Beat The Consensus In Q4?

Oracle (NYSE: ORCL) is scheduled to report its fiscal Q4 2022 results on Monday, June 13 (after market close). We expect Oracle to edge past the consensus estimates of revenues and earnings. The technology giant posted mixed results in the last quarter, with revenues beating the expectations but earnings missing the mark. It reported total revenues of $10.5 billion – up 4% y-o-y, primarily driven by a 5% increase in the cloud and license revenues and a 7% rise in the services segment. Notably, the cloud & license category contributes close to 85% of the top line. It benefited from growth in both the segments – cloud services & license support, and cloud license & on-premise license, driven by a continuous flow of new business and high contract renewal rates. We expect the same trend to continue in the fourth quarter (Note – Oracle’s FY’21 ended on May 31, 2021. Q4 FY’22 refers to the quarter that ended on May 31, 2022).

Our forecast indicates that Oracle’s valuation is $102 per share, which is 43% above the current market price of just above $71. Our interactive dashboard analysis on Oracle’s Earnings Preview has more details. 

(1) Revenues likely to top the consensus estimates

Oracle’s revenues increased 4% y-o-y to $40.5 billion in FY 2021. The growth was due to a 5% rise in the cloud and license business. 

• The cloud & license business grew 5% to $34.1 billion in FY2021. Further, the same trend continued in the first nine months of FY2022, with the segment revenues touching $25.9 billion (up 5%). We expect the fourth-quarter results to be on similar lines.
• The hardware business contributed 8% of the total revenues in FY2021. It posted slight negative growth in the year, as the company is less focused on certain non-strategic hardware products and related support services. Further, the same trend continued in the first nine months of FY2022, with segment revenues decreasing by 6% y-o-y to $2.3 billion. We expect the same momentum to continue in the fourth quarter.
• The revenue share of the services business is around 7-8%. It witnessed a slight downfall in FY2021 due to lower consulting revenues. However, services revenues for the first nine months of 2022 have increased 7% y-o-y to $2.4 billion. We expect the same trend to continue in the fourth quarter.
• Overall, we forecast Oracle’s revenues to remain around $42.4 billion for FY 2022 and $44.3 billion for FY2023.

Trefis estimates Oracle’s fiscal Q4 2022 revenues to be around $11.78 billion, 1% above the $11.67 billion consensus estimate. Moving forward, we anticipate the high demand for Oracle’s products to continue over the subsequent quarters. Our dashboard on Oracle’s revenues offers more details on the company’s operating segments along with our forecast for FY2023.

(2) EPS is expected to marginally beat the consensus estimates

Oracle Q4 FY2022 adjusted earnings per share (Non-GAAP EPS) is expected to be $1.40 per Trefis analysis, almost 2% above the consensus estimate of $1.37. Despite a modest growth of 4% in the top line in FY2021, the net income increased 36% to $13.7 billion. It was primarily due to a one-time net tax benefit related to the transfer of certain assets between subsidiaries in the third quarter of FY2021. On the flip side, the cumulative nine-month net income decreased 64% y-o-y to $3.6 billion. This was mainly due to higher expenses as a % of revenues driven by a significant jump in acquisition-related and other costs. The fourth-quarter results are likely to be on similar lines. 

Furthermore, we expect the net income margin to see some drop in the next fiscal year. Overall, Oracle is likely to report an adjusted net income of $13.8 billion and annual GAAP EPS of $5.55 in FY2023. 

(3) Stock price estimate is 43% more than the current market price

We arrive at Oracle’s valuation, using an EPS estimate of around $5.55 and a P/E multiple of just above 18x in fiscal 2022. This translates into a price of $102, which is 43% above the current market price of around $71. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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