The Stock of Oracle Has a 'Huge Call Option,' Says a New Bull

Evercore ISI's Kirk Materne has expressed a newfound optimism regarding Oracle Corp.'s stock, believing it has reached a more intriguing entry point. This sentiment arises as Oracle's shares experienced a 13% decline since the last earnings report.

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Materne has upgraded Oracle's stock from an "in line" rating to "outperform." In his analysis, he highlights that the company is now better positioned to achieve consistent revenue and earnings growth, primarily due to an increased percentage of revenue derived from its cloud solutions.

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He acknowledges that there may still be discussions about the occasional volatility in Oracle Cloud Infrastructure (OCI) and Cerner businesses. However, he maintains a positive outlook. One notable aspect is the potential of the OCI business, which he describes as a "significant call option."

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According to Materne, the OCI story might have been somewhat overly optimistic in the spring, but he sees substantial long-term potential that can enhance both his estimates and the company's valuation. While predicting the growth trajectory of this segment remains somewhat uncertain, he believes his forecast of a 50% compound annual growth rate through fiscal 2026 is plausible.

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In essence, Materne asserts that the mathematical odds favor Oracle in terms of generating more consistent top-line trends. The increasing proportion of cloud revenue in Oracle's overall mix gives confidence that the company can maintain a steady mid-to-high single-digit growth rate in revenue.

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Materne also highlights the significance of Oracle's scale in the current economic landscape. Amid the current discussions around artificial intelligence (AI), he emphasizes that larger "suite" vendors are thriving. Oracle, in particular, stands out as the only vendor with a dominant presence in cloud-based applications, middleware (including databases), and infrastructure.

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As of Monday morning, Oracle's shares showed a 0.4% increase, reaching $110.43. With Materne's revised price target of $135, there is an implied 22% upside potential from the current trading level. This outlook suggests a more favorable position for investors considering Oracle as a viable option in their portfolios.

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