By Evercore ISI’s Kirk Materne has raised his outlook on Oracle Corp.’s stock (ORCL) on Monday, highlighting a “more interesting entry point” for investors. Despite a 13% decline since the company’s last earnings report, Materne now rates the stock as “outperform” rather than “in line.” He believes that Oracle is well-positioned to achieve more consistent revenue and earnings growth, largely due to the increasing percentage of revenue coming from its cloud solutions.
While Materne acknowledges that there may be ongoing discussions about the “lumpiness” in the Oracle Cloud Infrastructure (OCI) and Cerner businesses, he remains optimistic. He considers OCI to be a significant opportunity for growth, stating that although it may have received excessive hype earlier this year, the long-term potential still provides upside potential to both estimates and valuation. Although predicting the growth trajectory of this particular business segment is challenging, Materne believes that his forecast of a 50% compound annual growth rate until fiscal 2026 is reasonable.
According to Materne, the math is favoring Oracle in terms of generating more consistent top-line trends. The increasing contribution of cloud revenue to the company’s overall revenue mix leads him to confidently predict mid-high single-digit revenue growth going forward.
One aspect that Materne appreciates about Oracle is its scale. While AI discussions dominate the tech industry, he believes that larger “suite” vendors are winning in today’s economy. Oracle stands out given its dominant positions in cloud-based apps, middleware (such as databases), and infrastructure.
On Monday, Oracle’s shares rose by 0.4% in morning trading, reaching $110.43. Materne’s new price target of $135 implies a potential upside of 22% from the current price level.
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