Oracle Impresses Analyst As Top Defensive And Cloud Play Amid Macro Headwinds

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  • Keybanc analyst Michael Turits maintained Oracle Corp ORCL with an Overweight and raised the price target from $80 to $94.
  • The re-rating came ahead of F2Q earnings Monday. 
  • Consistent with Turits' recent upgrade, the analyst viewed Oracle as a defensive investment in a challenging macro and long-term "cloud re-rating" story. 
  • Turits saw the opportunity for continued MSD-HSD% CC revenue growth led by Oracle's high growth backoffice SaaS and cloud OCI segments, with continued at least MSD database growth. 
  • Turits expected EBIT margins to expand, with Cerner moving from the low 20s toward Oracle's mid-40s standalone margins and increasing efficiencies in cloud apps and infrastructure, mainly offsetting the pressure on gross margins from the mix shift to the cloud. 
  • While 3Q software earnings have included several meaningful guides down for CY23, Turits was encouraged by solid backoffice results from WDAY and other HCM vendors and better-than-expected data results from MongoDB, Inc MDB and Confluent, Inc CFLT
  • With the 3Q deceleration in Microsoft Corp MSFT Azure and Amazon.com Inc AMZN AWS this quarter, Turits was cautious on OCI but viewed Oracle's smaller and more opportunistic cloud business as less exposed to a broader cloud operating expenditure pressure. 
  • Turits saw the opportunity for ORCL to re-rate at less than the current 15% P/E discount to the S&P as its SaaS and OCI businesses continue to show sustained growth.
  • Price Action: ORCL shares traded higher by 0.70% at $80.42 on the last check Monday.
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