Oracle Stock falls on Cerner News. The stock always looks like a purchase.


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Oracle shares have rallied impressively since Barron’s wrote a bullish cover story on the company in February.

Justin Sullivan / Getty Images


Oracle

stocks had a fantastic run in 2021. The stock is up 58% since Barron highlighted the company’s impressive progress in cloud-based business software in a February cover story.

Oracle (ticker: ORCL) has seen increased adoption of cloud-based versions of its database and application software, while showing strong growth for Oracle Cloud, an emerging competitor to Amazon Web Services and Microsoft Azure.

But there is a new wrinkle in the history of Oracle. Last Thursday, the Wall Street Journal reported that Oracle in talks for a $ 30 billion acquisition of the electronic medical records company


To encircle

(CERN).

Oracle shares fell 6.4% on the news to $ 96.62, with investors likely concerned about how Oracle would fund the deal and how that would affect the cloud push and share buybacks of the company.

This will likely only be a brief hiatus for the Oracle rally. Cloud growth is a multi-year opportunity.

Until Cerner’s announcement, Oracle stock was basking in earnings glory. Earlier this month, Oracle said revenue for its fiscal second quarter ended Nov. 30 was up 6% from a year ago, well ahead of the company’s forecast.

Oracle CEO Safra Catz noted that the combined revenue of cloud-based applications and database software grew 22% during the period, with growth likely accelerating in the coming quarters. . Stock climbed 15% on the news, reaching a record close.

Oracle continued to back its stocks with an aggressive buyback program. The company repurchased $ 7 billion in the last quarter alone and repurchased almost half of its shares in the last decade. The buybacks could be derailed by a deal for Cerner.

It should be noted that Oracle has been considering buying Cerner for a long time. Cerner’s name was on an internal list of nine potential targets for Oracle mergers and acquisitions that surfaced in 2004. (All other companies on this list have now been acquired by Oracle,


SAP
,

or someone else.)

Neither Oracle nor Cerner responded to requests for comment, but Oracle founder and chairman Larry Ellison expressed the company’s interest in healthcare during the recent earnings call.

An acquisition of Cerner would be the largest in Oracle’s long trading history, which includes $ 9.3 billion for NetSuite in 2016, $ 7.4 billion for Sun Microsystems in 2010, $ 8.5 billion for BEA Systems in 2008, $ 5.9 billion for Siebel Systems in 2006, and $ 10.3 billion for PeopleSoft in 2005.

At $ 30 billion, Cerner would be valued at about five times Wall Street’s 2022 sales estimate of $ 6.1 billion. Stifel analyst Brad Reback points out in a research note that Cerner has a gross margin in the range of 80%, but operating margins of only 20%, “leaving a significant amount of operational efficiency to capture ”.

It’s still an opportunity for Larry Ellison and Safra Catz.

Write to Eric J. Savitz at [email protected]


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