JPMorgan cuts Oracle stock after earnings as cloud growth 'may be peaking'

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JPMorgan cuts Oracle stock after earnings as cloud growth 'may be peaking'
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Oracle (NYSE: ORCL ) shares fell as much as 13.5% on Tuesday due to slowing cloud sales growth for the quarter, marking the largest one-day drop since March 2002.

Despite this drop, Oracle's shares are still up 34.1% for the year.

Oracle reported adjusted revenue of $12.45 billion, which represented an 8.8% year-over-year increase but was slightly below the estimated $12.44B. When considering revenue in constant currency, there was an 8% increase, below the consensus of 8.5%.

Additionally, Oracle's adjusted EPS stood at $1.19, surpassing the $1.03 from the previous year and exceeding the estimated $1.15.

Monness, Crespit, and Hardt analysts downgraded Oracle stock yesterday, while their JPMorgan colleagues did the same a couple of hours later.

“Oracle deserves credit for its multi-year accomplishments and total recurring revenue growth, but we view a low/mid-20s uFCF multiple as fair for ~8% non-Cerner growth glidepath targeted this year, and perhaps mid-single-digit growth in aggregate, with some hurdles emerging in the next several quarters,” JPMorgan analysts wrote in a downgrade note.

They added that the investment bank’s Generative AI CIO Survey, which was published in June, raised some questions about Oracle’s positioning. The analysts slashed the stock's price target by $12 to $100 per share.

“Very recently we have struggled to justify a valuation which had lifted to >25x EV/uFCF, resulting in our PT never exceeding $112 even amidst a recent cluster of ratings upgrades which temporarily lifted the stock above this level,” they further added.

Oracle shares are down a further half a percent in premarket New York trading on Wednesday.


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