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13th May 2022

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Oracle Has Rallied 25% This Year. Why One Analyst Turned Neutral on the Stock.

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Barclays analyst Raimo Lenschow cited valuation concerns in downgrading Oracle’s stock.

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shares have been on a roll. The enterprise software company’s shares have rallied 25% year to date, and recently set an all-time high of just over $80 a share.

Barclays analyst Raimo Lenschow thinks investors should take profits. He trimmed his rating on Oracle’s stock (ticker: ORCL) to Equal Weight, from Overweight, while keeping his $80 price target.

Lenschow had raised his rating on the stock two months ago, ahead of earnings. He cited two reasons for the upgrade—accelerating revenue growth due to a changing mix and a style rotation toward more value-priced stocks as the recovery broadens.

“So far, the second catalyst has played out and Oracle has been a strong relative performer year to date,” he writes. “However, to see further relative outperformance a growth acceleration at Oracle is needed, and we don’t have enough tangible data points for this yet.”

Lenschow notes that the stock has been driven by a shift in market focus away from a narrow group of high growth stocks “towards a broader recovery portfolio,” including Oracle. He says the style rotation could continue, but that Oracle’s valuation has increased, and could see less upside from that source.

“The more important driver for future upside will be a revenue growth acceleration at Oracle that would enable a further positive rerating,” he writes. “So far, there are only early signs of an improving mix effect such as a meaningful increase in cloud cap ex that could lead to better growth going forward. However, looking at recent quarters and guidance, there is not enough evidence here to get overly excited yet.”

On Monday, Oracle shares slipped 0.6%, to $79.93.

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2021-05-10 17:04:00

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