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Oracle could see more pain ahead, even when accounting for Tuesday’s slide, according to JPMorgan. Analyst Mark Murphy downgraded the cloud stock to neutral from overweight and cut his price target by $12 to $100. His new target implies an 8.8% slide from Tuesday’s close. Oracle offered mixed results for its fiscal fourth quarter Monday, with the company missing consensus expectations of analysts polled by LSEG for revenue despite beating on earnings per share. The stock fell 13.5% on Tuesday in its worst session since 2002. “In our view, Oracle’s accomplishments are still very legitimate and investors will likely remain interested in the story,” Murphy said in a note to clients Tuesday. “However, we also sense potential for some offsetting dynamics which may take some time to work through the system and become factored in.” Murphy said Oracle’s cloud infrastructure business could be peaking at the same time that new hurdles pop up from the Cerner acquisition and buildout of the company’s data center. The move follows a contrarian upgrade when the stock bottomed in the mid-$40 range as it was unlikely to trade under 10-times-earnings for long, he said. Now, Murphy said it’s hard to justify a valuation above 25-times enterprise value-to-unlevered free cash flow. That’s made it hard to see the stock ever trade above $112 despite upgrades from Wall Street peers pushing the stock briefly above this level. Solid Oracle cloud business growth is one of those reasons the company should be proud, he said, as is its wins in the artificial intelligence space and margin expansion amid the Cerner transformation. Investors can also cheer what he called healthy recurring revenue growth, while not being overly harsh about declines in some businesses given that many are not core to the company. Still, he said there’s multiple reasons for investors to take pause. Cerner is in a multi-quarter period with less compound annual growth than expected, with Murphy saying there’s “more questions than answers” as the business creates headwinds to revenue growth. Oracle now also has raised concerns about its ability to execute on a data center buildout that could hamper cloud growth. It’s also a tough period when compared to the past when it comes to expected revenues left from contracts, he said. And though there’s reasons to be excited about AI, he did note a survey of CIOs left “room for improvement.” There’s also financial reasons for concern, he said. Some have overlooked the net debt balance of $27 per share, he said. Meanwhile, a decline in capital expenditures declining is also something he said to watch. — CNBC’s Michael Bloom contributed to this report
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