On June 14, Oracle’s stock price soared 10% after the enterprise software firm announced its report for Fiscal 2022 fourth-quarter earnings (for the period ending on May 31). Its revenue increased 5 percent year over year (or 10 percent in constant currency terms) to $11.84 billion, exceeding analysts’ expectations by $190 million.
Adjusted net income dropped 6% year over year to $4.24 billion, but the adjusted earnings per share (EPS) boosted by $600 million in buybacks — remained flat at $1.54 and exceeded expectations by $0.16. Its net income fell 21% on a generally accepted accounting principles basis to $3.19 billion.
Despite the fact that its reported earnings may appear modest, Oracle’s stellar top-line growth, consistent profitability, high dividend, cheap valuation, and aggressive stock buybacks all make it a recommended investment in this turbulent market.
Should investors buy Oracle shares as a defensive investment against the possibility of an economic downturn?
Its revenue growth is accelerating again
Oracle’s expansion slowed in fiscal 2019 and 2020 when it failed to compensate for the slower growth of the legacy on-site services. That deceleration even compelled Warren Buffett’s Berkshire Hathaway, which had been favorably impressed by Oracle’s consistent growth and substantial buybacks, to sell all of its shares in January 2019. Later that year, Oracle co-CEO Mark Hurd died.
Oracle’s revenue growth has remained steady and accelerated once again over the past two years. Its consistent buybacks, which decreased its outstanding share count (on a diluted weighted average basis) by 33% over the last five years, also allowed it to deliver rock-solid earnings growth.
The company credited its strong recovery to the growing popularity of its Fusion ERP, OCI, and NetSuite ERP cloud-based solutions. Its license support revenue and total cloud services climbed 6% to $30.2 billion in FY 2022, accounting for 71% of its top-line growth over the prior year.
Its higher-growth cloud services sales increased 22% to $10.8 billion in 2022. In constant currency, it anticipates the segment (excluding Cerner) to rise about 30 percent organically in fiscal 2023.
A bright future and a reasonable valuation
Analysts forecast that Oracle’s GAAP EPS and revenue (including Cerner) will rise by 18% and 63%, respectively, for the year. Oracle is priced at a fair 18 times forward earnings, with a forward dividend yield of about 1.8 percent paid out.
For growth investors, Oracle may appear to be a boring investment but I think it’s the perfect type of defensive stock for this volatile environment.