Tuesday, BMO Capital Markets adjusted its outlook on Oracle Corporation (NYSE:ORCL), increasing the shares price target to $142.00 from the previous $126.00 while maintaining a Market Perform rating.
The revision follows Oracle's reported robust Recurring Profit Obligation (RPO) bookings, showing a year-over-year increase of 29% and a quarter-over-quarter rise of 23%. These figures are expected to compensate for the company's reasonable yet unremarkable reported revenue growth and future revenue projections for the fourth quarter of fiscal year 2024 and the first quarter of fiscal year 2025.
Oracle's February quarter Free Cash Flow (FCF) margin reached 29%, which notably surpassed both the analyst's and the Street's estimates. The higher margin was attributed to reduced capital expenditures. In light of Oracle's solid RPO performance, BMO Capital has also revised upward its fiscal year 2025 estimates for the company.
The analyst from BMO Capital noted the rationale behind the upgraded price target, citing the significance of Oracle's RPO bookings in the financial assessment. Despite the positive adjustment, the Market Perform rating was reaffirmed based on the valuation of Free Cash Flow relative to revenue growth. The analyst suggested that a more favorable point of entry would be required to adopt a more constructive stance on Oracle's stock.
Oracle's recent financial performance, marked by the substantial FCF margin and the impressive growth in RPO bookings, has led to a more optimistic financial forecast for the upcoming fiscal periods. BMO Capital's revised price target reflects these updated expectations, while the firm remains cautious about the current stock valuation.
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