Oracle shares recovered to pre-pandemic levels in July last year, since then the quotes have had a strong uptrend. At the beginning of June 2021, a significant correction took place in the shares, but at the beginning of July, the quotes not only recovered, but also rewritten the historical maximum.
Oracle is one of the largest software manufacturers, as well as a supplier of server equipment.
In total, since the beginning of the year, the company's quotes have increased by 35.7%, and over the past 12 months — by 52.6%. Let's look at the latest events in the company and the immediate prospects after the record update.
Events
The clouds
Last week, the Department of Defense canceled JEDI's 10-year cloud computing contract with Microsoft. This decision was lobbied by Amazon and Oracle in court, now Oracle can take part in a new tender.
The question of further development of the company has been at an impasse for a long time. But earlier this year, Oracle made important steps in cloud technologies to reduce the significant backlog from larger representatives of the industry.
So, in the database software, the main innovation was the Autonomous Database system. It is a cloud-based product that uses machine learning and artificial intelligence to automate security, backup, install updates and other tasks that usually require an army of administrators. First of all, this reduces costs for the company itself and gives it additional income.
Last month, the company released financial results for the quarter ended in May 2021. It highlighted important points of income growth:
- Application Portfolio: Revenue of Fusion ERP (financial software for large companies) increased by 46%. Fusion HCM (personnel management software for large companies) increased by 35%. NetSuite ERP (financial software for small businesses) increased by 26%.
- The cloud infrastructure business, including Oracle Cloud and Autonomous Database software, has grown by more than 100%.
Whether Oracle will be able to compete for the Pentagon contract is still unknown, since not all companies meet its conditions - but Oracle has been saying for years that its cloud solutions meet the technical requirements of the government.
If Oracle takes the contract, it will not have a significant impact on revenue, but it will be evidence that the company is able to compete with Amazon AWS and Microsoft Azure. Such an intrigue pushes the quotes and attracts the interest of investors.
Extensions
During the publication of the report, the company announced an increase in capital expenditures. In the 2022 fiscal year, they have almost doubled from the level of the 2021 fiscal year and will amount to $4 billion. Although Oracle claims its competitive advantage, it still does not have a significant share of the "cloud" market.
It is difficult to evaluate the results, since investors do not have a complete picture of income. Above, we talked about significant growth in different segments, but total revenue increased by only 4% Y/Y.
A positive factor is a fairly significant free cash flow, which in 2021 amounted to $13.8 billion. In the past, thanks to him, the company was able to support the repurchase program: since 2011, the number of shares has decreased from 5 billion to 2.9 billion. And the company has been paying dividends since 2009, constantly increasing them. At the beginning of 2021, the company increased its annual dividend from $0.96 to $1.28.
The expenses are still more than the FCF, which forced the company to use promissory notes. An increase in current capital expenditures and in general all expenses may trigger a reduction in the repurchase program or an increase in debts.
Technical picture
Oracle shares have been in a steep uptrend since last summer. The recent rise contributed to the entry of the daily and weekly RSI into the overbought zone. On the daily basis, there is a bearish divergence (orange line) at all.
After a significant rise, a correction naturally begins, and this case is no exception. If buyers do not ignore the overbought, and no new drivers are received, the price may soon drop to $84 and move to the test of the 21-day moving average. When descending below $76, we can talk about a new benchmark for a decline - $72-68.
If the company still wins the tender and continues to capture the cloud technology market, then in the future this will be an excellent driver for continuing growth to $100, while there is no complete confidence in this.
Is it worth buying
The risks for correction are now high, so the input from the current levels looks excessive. Moreover, the price is already higher than the average target of analysts - $81.6, but they vary within $60-115. 19 of the 28 recommendations of analysts-hold, only 5-buy and 2-sell.
Oracle needs something more than a possible contract with the Pentagon, although it can increase the investment attractiveness of the company. As long as there is uncertainty in this issue, investors will closely monitor events and increase volatility in stocks.