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Bet on Oracle shares, bet on the Cloud


What is the Cloud? You may hear about it a lot, but may not fully grasp the sheer extent of this revolution. The Cloud really represents an opportunity for both individuals and businesses to store data and software off-premises.

Take Google Mail, or Gmail. This is a classic example of a Cloud-based application that only requires an Internet connection to allow the user to access emails and files that are not stored on his computer. For businesses the Cloud represents a major opportunity to access new efficiencies in the way they store and manage data.

Oracle shares have investors confused

Oracle, which releases an earnings report in the US on Monday, has been investing heavily in its Cloud-based capabilities. It is trying to move its clients away from the old way of doing business, with software installed and stored on-premises, to a Cloud-based approach.

This has been an expensive multi-year project for Oracle. The market will be looking for some good news and evidence that this strategy is starting to pay off. Consensus estimates put Oracle’s earnings at around $9.77 billion for fiscal third quarter. This would be a gain of 6% against a year ago. Investors are expecting adjusted earnings of 72 cents per share, a gain of 4% on the year.

Ross MacMillan, an analyst with RBC Capital Markets, has revised his price target for Oracle shares from 51 to 55. There are a number of factors behind this, including a stronger USD and the additional benefit of Trump tax cuts which are lifting most US businesses. However, MacMillan says Oracle is starting to get some traction with its Cloud-based approach, though he fears that it is still behind smaller and nimbler competitors who will beat it to the punch and whose agility will allow it to poach some clients from Oracle.

UBS has also set a new target price for Oracle shares at 55.

Oracle’s share price has surged on after hours trading, once the US markets closed on Friday. Oracle stock closed at 52.26 Friday afternoon but has since surged up to 52.94 over the weekend. The market is obviously expecting some good news out of the company come close of business tomorrow (Monday).

Oracle shares have seen upward trend

Oracle shares have been enjoying an upward trend since 8 February when they were trading at around 46.84. They have had a chopping time since last July, trading in a range between 46 and 52.50. The market obviously can’t make up its mind about whether to back Oracle to the next level.

We would argue that Oracle has the scale and reach to make the most of the coming Cloud-based revolution in the corporate and government sector. It has very few competitors on the international stage that can match it in the areas it has chosen to specialise. It has recently become involved in a major project to modernize the logistics infrastructure of the armed forces of Qatar alongside Boeing and Accenture. There aren’t that many tech stocks out there that get picked for that kind of an assignment.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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