Oracle Q1 Earnings Preview: What to Watch

Earnings

On September 12, following the closing of the market, Oracle (NYSE:ORCL) is expected to release its Q1 financial data. Oracle stock may move higher or lower following the release of the results.

First Quarter to Contain Cerner’s Results

The report will be the first since the deal to acquire Cerner, a primary provider of medical records, was finalized in June. Additionally, hundreds of employees from the company’s advertising and customer support divisions have been let go over the preceding 90 days.

The June Cerner acquisition complicates Oracle’s quarterly forecast.

According to Jonathan Weber, there will be a few one-time items in Oracle’s next report due to the Cerner acquisition. 

The Cerner acquisition is anticipated to “create a bit of noise around Oracle’s business segments” this time, according to Monness, Crespi, Hardt & Co analyst Brian White.

Recent average sales growth should be higher. Cerner’s $6 billion in 2021 revenue will be added to Oracle’s quarterly statistics. Oracle’s organic growth suggests that revenues will be $1.5 billion to $2 billion higher than last year, or a 15%-20% increase. Analysts predict an 18% year-over-year revenue gain.

Once the Cerner merger closes, revenue growth will slow down again. Thus investors shouldn’t assume this takeover has permanently increased Oracle’s revenue growth rate.

Analysts predict first-quarter EPS of $1.08, up marginally from last year. Since most synergies won’t be recognized yet and integrating a company has one-time upfront costs, Oracle’s earnings will likely have grown less than its revenue. Over time, it should alter as cost savings are absorbed, but upfront closing expenses won’t arise after Q1.

Although Oracle’s debt load is “a significant concern,” analyst firm Valuentum said that the company shows promising dividend growth potential.

Oracle stock’s dividend yield is 1.7%, the market average. Over the last five years, dividend increases averaged 13%. If Oracle could maintain its dividend growth pace, investors’ yield on cost would rise significantly. Oracle’s long-term EPS growth is expected to be 9%, and its payout ratio is merely 24%, so there’s room for dividend hikes.

The analyst predicts that revenue from cloud licenses and on-premise licenses will be $1.24 billion, up 53% year over year, and that revenue from cloud services and license support will increase 8% to $7.99 billion. Hardware revenue is predicted to fall 4% over the same period to $736 million, while service sales are predicted to increase 93% year over year to $1.5 billion.

With a buy rating and a price objective of $107 per share, Guggenheim analyst John DiFucci began covering Oracle stock, speculating that the software behemoth from Texas may see “years of hypergrowth.”

In the past three months, there have been 16 upward adjustments to revenue forecasts and 0 downward revisions to EPS expectations.

In the past two years, Oracle has outperformed revenue projections 63% of the time and EPS estimates 88% of the time.

Oracle’s recent sales performance was solid but not remarkable, with revenues rising in the mid-single digits. Oracle’s earnings per share grew faster than revenues because of tight cost management and share repurchases.

Oracle Stock Performance

Oracle stock year-to-date decline is 14%. Compared to the entire market’s performance in 2022, the share price performance is still respectable. Oracle stock has generally tracked the market, dipping during sell-offs and recovering during rallies. Oracle’s beta of 0.9 implies a strong correlation between the stock’s and the market’s moves in recent years. Oracle stock underperformed the market over five years, rising 40% while the S&P 500 grew 60%.

Oracle has provided significant shareholder value over time. Earnings per share have doubled in the last ten years, a high-single-digit annual growth rate. With Oracle’s dividends, this gives decent returns.

Oracle stock could be a decent choice at the current price due to its undemanding valuation, possible synergies from the Cerner acquisition, and stable dividend increases.

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About the author: Stephanie Bedard-Chateauneuf has over four years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on consumer stocks, cannabis stocks, tech stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.