Here’s Why Oracle Is Really a Tech Value Stock

Analysts keep saying that Oracle (NASDAQ:ORCL) stock is defying the tech wreck. It’s not.

Oracle shares were recently trading at about $68 each. That’s down over 15% over the last year, with the Dow Jones down about 12%. Since the start of 2022 shares in the database software king are down more than 20%. That’s less bad than the Nasdaq average, which is now down by one-third from where it was in January. But CEO Larry Ellison isn’t a centi-billionaire anymore, either.

What ORCL stock does have are earnings and dividends, the things conservative investors crave. The company earned about $3.2 billion, $1.16/share fully diluted, on revenue of $11.8 billion for its latest quarter, announced on June 13. It also announced a dividend hike of 19%, to 32 cents/share.

ORCL Stock: A Value Stock in a Growth World

Oracle is that most unusual of birds, a tech value stock.

That means it delivers profits and dividends, but little growth. Management was thrilled that revenue grew 10% year-over-year in fiscal 2022, when currency fluctuations were taken out. In constant dollars they were up 5%. Profits were lower than in 2021, despite the dividend hike.

Oracle has a long-term hold on the database software market, for which it charges handsomely. It bought most of its application rivals during the 2000s. It capped this by buying Sun Microsystems and trying to make key open source technologies proprietary. Since the Sun deal closed in early 2010, ORCL stock is up only half as much as the Nasdaq average.

Oracle’s active resistance to open source caused it to miss the cloud revolution. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), then similar in size, have become cloud czars worth trillions, their stocks rising over 700% each. That’s almost four times the gain Oracle has seen.

The Cerner Buy

Two things are now moving analysts back to Oracle’s side.

First is the recent dramatic fall in tech, which I’m calling “clouddammerung.” The cloud gods whose stocks did best during the last decade’s boom have fallen hardest this year. Mighty Amazon (NASDAQ:AMZN), a 10-bagger for investors during the boom, is down by almost 40% in 2022, as the preference for earnings over growth has accelerated.

Second is Oracle’s purchase of Cerner, the health informatics leader, on June 8.  Oracle paid $28.3 billion in cash for Cerner, which was already an Oracle customer.

Cerner has about one-quarter of the hospital records market, second to privately held Epic, which had nearly 40% in 2021. 

The hope among bulls is that Oracle’s financial strength will reverse those trends. But Oracle’s pricing has caused it to continue losing share, even within its database niche.

Oracle Cloud

Oracle was late to the cloud but has finally joined the party. Oracle doubled its capital budget in 2021, but it still spends a small fraction of what industry leaders do.

The Cerner deal, which became final after Oracle’s fiscal year ended, nearly wiped out its cash balance, which stood at $21.4 billion on May 31. The company also took on debt in buying Cerner. It already had $72 billion of it before the deal, against a June 16 market cap of $185 billion.

The Bottom Line on ORCL Stock

Oracle is a value stock, and that’s fashionable right now.

Amid the ruins of the bear market, ORCL stock is less battered than rivals. It’s profitable, and the new dividend gives it a yield of 1.84%. Its price stranglehold over current customers will be easy to extend into the hospital niche.

But Oracle’s customers are among the laggards in cloud transformation. Its plans to build a giant store of U.S. health records to replace Cerner hospital records won’t move the needle. Oracle remains a conservative stock for conservative investors.

On the date of publication, Dana Blankenhorn held long positions in AMZN, MSFT and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.