Often the top firms we cover at 24/7 Wall St. are positive on a stock and may have it rated at Buy, but when something positive like earnings or other catalysts start to factor in, the analysts may become even more positive and believe a rerating may be in order. That generally applies to the question of what the market’s current valuation should be, in light of new-found data or direction.
In a new report, the analysts at Jefferies feature three compelling value stocks that they feel may be in for a rerating or a new valuation, due to earnings and outside events. All three stocks are rated Buy at Jefferies.
This top software stock has traded sideways since last summer and looks to be breaking out. Oracle Corp. (NYSE: ORCL) develops, manufactures, markets, sells, hosts and supports database and middleware software, application software, cloud infrastructure, hardware systems and related services worldwide. It licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval and manipulation of various forms of data. Its Oracle Fusion Middleware software aims to build, deploy, secure, access and integrate business applications, as well as automate their business processes.
With shares trading at 15.83 times estimated 2016 earnings, and with a solid free cash flow yield, many analysts also feel that Oracle’s 12C database cycle starts to contribute during calendar 2016, and the stock could very well be poised for what they term a breakout year. After recent investors meetings, some analysts raised fiscal year 2017 cloud margins to 66% from 63% and earnings per share to $2.80. Some also believe that the software giant may be on the verge of a multiyear database product cycle.
The company recently reported solid results, in which license earnings were below estimates, but revenue from the cloud much higher. Jefferies continues to believe fiscal 2016 will be a trough year for company in many ways, and notes that the maturing sales force and selling strategy is beginning to unlock pent-up cloud demand within the company’s sizable customer base. The firm also feels that the expansion into the cloud has masked what the analysts believe is better business momentum than most on Wall Street currently realize.
Oracle investors are paid a 1.55% dividend. Jefferies has $50 price target for the stock, and the Thomson/First Call consensus price objective is $43.50. The stock closed Wednesday at $41.61 per share.