ORCL stock: Here’s why Oracle really is a value stock
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Analysts keep saying that Oracle (NASDAQ:ORCL) stock defies tech wreckage. It’s not.
Oracle shares recently traded at around $68 each. That’s down more than 15% from a year ago, with the Dow down about 12%. Since the start of 2022, shares of the king of database software are down more than 20%. It’s less bad than Nasdaq average, which is now a third lower than it was in January. But CEO Larry Ellison is no longer a centi-billionaire either.
What ORCL shares have are earnings and dividends, which are what conservative investors are looking for. The company earned about $3.2 billion, $1.16/share diluted, on revenue of $11.8 billion for its latest quarter, reported June 13. It also announced a 19% dividend increase to 32 cents/share.
ORCL stock: a value stock in a growing world
Oracle is the most unusual of the birds, a stock of technological value.
This means that it generates profits and dividends, but little growth. Management was pleased that revenue grew 10% year-over-year in fiscal 2022 once currency fluctuations were removed. In constant dollars, they increased by 5%. Earnings were lower than 2021, despite higher dividends.
Oracle has a long-term hold on the database software market, for which it charges handsomely. It bought out most of its application rivals during the 2000s. It capped that by buying Sun Microsystems and trying to make major open source technologies proprietary. Since closing the deal with Sun in early 2010, ORCL stock has risen only half the Nasdaq average.
Oracle’s active resistance to open source caused it to miss the cloud revolution. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), then of similar size, became cloud czars worth trillions, their shares each rising by more than 700%. That’s almost four times the gain Oracle has seen.
The purchase of Cerner
Two things are now bringing analysts back to Oracle.
The first is the recent dramatic downfall in technology, which I call “clouddammerung”. The cloud gods whose stocks performed best during the boom of the past decade have fallen the hardest this year. Powerful Amazon (NASDAQ:AMZN), a 10-bagger for investors during the boom, is down nearly 40% in 2022 as the preference for earnings over growth has accelerated.
Second, Oracle bought Cerner, the healthcare IT leader, on June 8. Oracle paid $28.3 billion in cash for Cerner, which was already an Oracle customer.
Cerner owns about a quarter of the hospital records market, second only to private company Epic, which held nearly 40% in 2021.
The hope among the bulls is that Oracle’s financial strength will reverse these trends. But Oracle’s pricing has caused it to lose market share, even in its database niche.
Oracle was behind the cloud but finally joined the party. Oracle doubled its capital budget in 2021, but it’s still spending a small fraction of what industry leaders are doing.
The Cerner deal, which became final after Oracle’s fiscal year-end, nearly wiped out its cash balance, which stood at $21.4 billion on May 31. The company also went into debt by buying Cerner. It already had $72 billion before the deal, compared to a market capitalization of $185 billion on June 16.
The essentials on ORCL shares
Oracle is a value stock, and it’s all the rage right now.
Amid the ruins of the bear market, ORCL stock is less battered than its rivals. It’s profitable, and the new dividend gives it a yield of 1.84%. Its control over the prices of current customers could easily extend to the hospital niche.
But Oracle customers are among the laggards in cloud transformation. His plans to build a giant US health records store to replace Cerner Hospital records will not move the needle. Oracle remains a conservative stock for conservative investors.
As of the date of publication, Dana Blankenhorn held long positions in AMZN, MSFT and GOOGL. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of The Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, available on the Amazon Kindle store. Write to him at [email protected]tweet it to @danablakenhornor subscribe to his Sub-stack.