Software giant Oracle Corporation (ORCL) surpassed revenue and EPS estimates in the last quarter. The company’s EPS was 3.2% above the consensus estimate, while its revenue beat analyst estimates by 2.1%.

The strength in cloud infrastructure and cloud-based applications drove the revenue beat. Its total cloud revenue, including infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS), rose 48% year-over-year in constant currency to $3.80 billion. IaaS revenue increased 59% year-over-year in constant currency to $1 billion.

Without the impact of the foreign-exchange rates, ORCL’s adjusted EPS would have been 9 cents higher. Its revenue was $200 million more than the high end of its guidance range. Cerner, which ORCL acquired in June, contributed $1.50 billion in revenue.

The Securities and Exchange Commission announced settled charges on September 27, 2022, requiring ORCL to pay more than $23 million to resolve charges for violating the Foreign Corrupt Practices Act (FCPA) provisions. ORCL has been fined for violating the provisions of the FCPA as its subsidiaries in Turkey, the UAE, and India created and used slush funds to bribe foreign officials for getting business between 2016 and 2019.

ORCL’s Corporate Communications VP, Michael Egbert, said, “The conduct outlined by the SEC is contrary to our core values and clear policies, and if we identify such behavior, we will take appropriate action.”

For fiscal 2023, the company expects its cloud revenue to grow more than 30% in constant currency compared to the 22% growth in fiscal 2022. ORCL expects its revenue to rise 17% to 19% on a reported basis and 21% and 23% on a constant currency basis in the third quarter. Also, it expects adjusted EPS for the third quarter between $1.17 to $1.21, lower than analyst expectations of $1.24.

ORCL’s stock has gained 19.5% in price over the past six months. On the other hand, the stock has declined 11.7% over the past year to close the last trading session at $80.94.

The company is expected to pay a quarterly dividend of $0.32 on January 24, 2023. Its annual dividend of $1.28 yields 1.59% on the current share price. It has a four-year average yield of 1.59%.

Its dividend payouts have increased at a 12% CAGR over the past three years and a 12.2% CAGR over the past five years. The company has grown its dividend payments for eight consecutive years.

Here’s what could influence ORCL’s performance in the upcoming months:

Steady Top-line Growth

ORCL’s total revenues increased 18.5% year-over-year to $12.27 billion for the second quarter that ended November 30, 2022. The company’s non-GAAP operating income increased 4.8% year-over-year to $5.08 billion. Its non-GAAP net income declined 2% year-over-year to $3.31 billion. In addition, its non-GAAP EPS remained flat year-over-year at $1.21.

Mixed Analyst Estimates

Analysts expect ORCL’s EPS for fiscal 2023 to decline 0.1% year-over-year to $4.90. Its EPS for fiscal 2024 is expected to increase 14.1% year-over-year to $5.59. Its revenue for fiscal 2023 and 2024 is expected to increase 17.5% and 7.6% year-over-year to $49.88 billion and $53.64 billion.

Mixed Valuation

In terms of forward non-GAAP P/E, ORCL’s 16.52x is 9.7% lower than the 18.29x industry average. Its forward EV/EBIT of 14.58x is 4.4% lower than the 15.26x industry average.

However, the stock’s 6.06x forward EV/S is 147.1% higher than the 2.45x industry average. In addition, its 4.38x forward P/S is 81.2% higher than the 2.42x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, ORCL’s 76.10% is 53.3% higher than the 49.64% industry average. Likewise, its 20.85% trailing-12-month levered FCF margin is 178.5% higher than the industry average of 7.49%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 14.49%, compared to the industry average of 2.50%.

POWR Ratings Reflect Uncertainty

ORCL has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has a C grade for Value, in sync with its mixed valuation.

It has a C grade for Sentiment, consistent with mixed analyst estimates.

ORCL is ranked #39 out of 138 stocks in the Software - Application industry. Click here to access ORCL’s Growth, Momentum, Stability, and Quality ratings.

Bottom Line

Although Cerner is expected to be accretive to its earnings this year, currency headwinds are expected to have a 4% negative effect on total revenue and a $0.06 negative impact on its EPS in the next quarter. The company’s adjusted EPS guidance was lower than analyst estimates.

Given its mixed analyst estimates and mixed valuation, it could be wise to wait for a better entry point in the stock.

How Does Oracle Corporation (ORCL) Stack up Against Its Peers?

ORCL has an overall POWR Rating of C, equating to a Neutral rating. Therefore, you might want to consider investing in different Software-Application stocks with an A (Strong Buy) or B (Buy) rating, such as Commvault Systems, Inc. (CVLT), eGain Corporation (EGAN), and Squarespace, Inc. (SQSP).

ORCL shares rose $0.51 (+0.63%) in premarket trading Wednesday. Year-to-date, ORCL has declined -5.58%, versus a -18.58% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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