Shares of Oracle Corp. took off toward a record Friday, after Barclays analyst Raimo Lenschow recommended buying, about a week ahead of the business software company’s earnings report, as he sees “undemanding” valuation despite signs of accelerating growth.
Lenschow raised his rating to overweight, after being at equal weight since January 2019. He also boosted his stock price target to $80, which is about 14% above current levels, from $66.
The stock (NYS:ORCL) surged 7.0% in afternoon trading, paring an earlier rally of as much as 9.3% to an all-time intraday high of $71.72.
Lenschow noted that investors had “ignored” Oracle’s stock for a while. Although the company had some “cloud jewels,” such as Fusion , Oracle Cloud Infrastructure (OCI) and autonomous database , the company also had many “poorly performing” businesses that resulted in relatively low growth.
“However, we believe the ‘good’ cloud products are now big enough to offset the headwinds from the dwindling products, pushing overall growth higher, and better IT spending will be an additional catalyst,” Lenschow wrote in a research note to clients. “This should prompt investors to revisit the name, especially given the undemanding valuation.”
The stock, on track for a fourth record close this week, has now run up 17.1% over the past three months, while the SPDR S&P Software & Services exchange-traded fund XSW has gained 6.5% and the S&P 500 index SPX has tacked on 3.2%.
Oracle is scheduled to report fiscal third-quarter results after the March 10 closing bell. The FactSet consensus is for earnings per share to rise to $1.11 from 97 cents a year ago, and for revenue to grow 2.6% to $10.05 billion. Cloud services and license support revenue is expected to increase 4.6% to $7.25 billion, while cloud license and on-premise license revenue is projected to declined 1.8% to $1.21 billion.
Lenschow expects Oracle to “deliver well” against consensus expectations, as “the trend of accelerating growth” should start with third-quarter results.
“We also see a favorable setup to Q4 guidance with easy [comparisons with year-ago results] and conservative consensus expectations,” Lenschow wrote.
Oracle has beat EPS expectations for 17-straight quarters, while surpassing revenue expectations 11 times during the span. The stock has lost ground the day after earnings were reported 11 times in the past 17 quarters, for an average decline of 4.3%, while the six gains averaged 7.6%.
Over the past 12 months, Oracle shares have run up 46.2% while the software and services ETF ha hiked up 55.1% and the S&P 500 has climbed 26.3%.