On Wednesday, HSBC adjusted its outlook on Oracle Corporation (NYSE:ORCL), increasing the stock's price target to $152.00, up from the previous target of $144.00, while reiterating a Buy rating on the shares. The adjustment follows Oracle's third-quarter fiscal year 2024 earnings, which surpassed consensus expectations.
Oracle reported a year-over-year revenue increase of 7% to $13.28 billion, nearly matching the anticipated $13.285 billion. A significant contributor to this growth was the company's cloud infrastructure as a service, which saw a 49% year-over-year rise. This surge played a major role in the overall growth in revenue for the quarter.
Further emphasizing the company's strong performance, Oracle's remaining performance obligations jumped to $80 billion in the third quarter, up from $65 billion in the second quarter, signaling robust demand trends.
The company's non-GAAP operating margin also saw an impressive year-over-year expansion, reaching 43.6%, which was above the consensus estimate of 42.9%. Additionally, Oracle's non-GAAP earnings per share (EPS) increased by 15.6% year-over-year to $1.41, outpacing the consensus estimate of $1.37.
While Oracle's fourth-quarter fiscal year 2024 guidance was generally in line with consensus, it was slightly below HSBC's estimates. Nevertheless, Oracle has described its fiscal year 2026 targets—which include $65 billion in revenue, a non-GAAP operating margin of 45%, and a return to a sustained 10% non-GAAP EPS compound annual growth rate—as "too conservative." The company anticipates an acceleration in revenue growth in fiscal year 2025, as headwinds from Cerner (NASDAQ:CERN) impacted the growth for fiscal year 2024.
Oracle also revised its fiscal year 2024 capital expenditure guidance, lowering it to a range of $7.0 to $7.5 billion from the initial estimate of "somewhere around $8 billion." HSBC's updated price target is based on a target price-to-earnings growth (PEG) multiple of 2.0x, which has been adjusted from 1.9x to align with peers in the large enterprise software sector.
The new target also considers a five-year non-GAAP EPS compound annual growth rate estimate of 12.2%, a slight decrease from the previous 12.8%, and a next-12-month non-GAAP EPS estimate of $6.19. With these factors in mind, the new price target suggests a 33.2% upside potential for Oracle's shares.
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