TLDR
- Oracle shares fell nearly 33% from September highs, prompting KeyBanc to label the stock undervalued
- Analyst maintains $300 price target with Overweight rating on Oracle stock
- Core business valued at $125 per share, infrastructure business worth $75-$135 per share
- Oracle’s cloud infrastructure trades at 3.5x revenue versus higher multiples for neocloud competitors
- Goldman Sachs and Jefferies also rate Oracle as a Buy with upside potential
Oracle stock has crashed hard. Shares are down nearly 33% since late September, wiping out billions in market value.
KeyBanc Capital Markets thinks the market overreacted. The firm says Oracle is undervalued and maintains a $300 price target.
That represents roughly 48% upside from the current price of $202.29. KeyBanc rates the stock Overweight, which means buy.
Analyst Jackson Ader used a sum-of-the-parts approach to value Oracle. He split the company into two segments: the core business and the infrastructure business.
The core includes applications and database products. The infrastructure side covers Oracle Cloud Infrastructure and Infrastructure as a Service.
Ader admits this valuation method has flaws. “There is a little bit of scolding the market and a lot a bit of yelling into the void,” he wrote.
But the numbers reveal a compelling story. Based on peer multiples, Oracle’s core business is worth about $125 per share.
Cloud Infrastructure Trading at Steep Discount
The real value gap sits in Oracle’s infrastructure business. At current prices, this segment trades at just 3.5 times revenue.
That’s a massive discount to neocloud companies like CoreWeave and Nebius. These firms command much higher revenue multiples from investors.
If Oracle’s infrastructure business received similar valuation multiples, it would be worth around $135 per share. That alone suggests the stock should trade much higher.
KeyBanc values the infrastructure business between $75 and $80 per share at current multiples. Combined with the $125 core business value, Oracle looks cheap.
The firm expects Oracle’s core business to reach 41-42% GAAP EBIT margins by 2028. Oracle generated margins in the high 30% range before heavy cloud investments.
Ader assigns most operating expenses to the faster-growing infrastructure segment. Interest expenses also get allocated primarily to the IaaS business.
Wall Street Split on Oracle Valuation
Other analysts see value in Oracle too. Goldman Sachs upgraded the stock to Buy with a $240 price target.
The firm highlighted Oracle’s potential in AI compute workloads and cloud revenue growth. Revenue climbed 11.07% over the last year to $61.02 billion.
Jefferies rates Oracle a Buy with a $400 price target. The firm calls Oracle a top pick despite concerns about AI-related spending.
UBS lowered its target to $280 but kept a Buy rating. Analyst price targets range from $175 to $400 across Wall Street.
Oracle trades at a P/E ratio of 37.95. The company has raised its dividend for 12 straight years.
Michigan regulators recently approved a new Oracle-OpenAI data center in Saline Township. The multi-billion dollar facility expands Oracle’s cloud footprint.
KeyBanc’s analysis might sound desperate to some investors. But the firm sees real value after the recent stock collapse.
