Oracle (ORCL) Stock: Top Analyst Sees 48% Upside After Recent Sell-Off

TLDR

• Oracle stock dropped nearly 33% since late September, prompting KeyBanc to call it undervalued
• KeyBanc maintains Overweight rating with $300 price target on Oracle shares
• Core business (applications and database) valued at roughly $125 per share based on peer multiples
• Infrastructure business including Oracle Cloud Infrastructure trades at 3.5x revenue, below neocloud peers
• If given similar multiples to neocloud companies, IaaS business could be worth around $135 per share

Oracle stock has taken a beating over the past few months. The company shed nearly one-third of its market value since late September.

Oracle Corporation, ORCL

But one Wall Street firm sees opportunity in the wreckage. KeyBanc Capital Markets argues the stock is now undervalued and worth buying.

The firm maintained its Overweight rating with a $300 price target. Oracle currently trades at $202.29, which means KeyBanc sees roughly 48% upside from current levels.

KeyBanc analyst Jackson Ader admits the analysis requires some creative accounting. He splits Oracle into two separate businesses to make his case.

But the numbers tell an interesting story. Ader values Oracle’s core business at around $125 per share.

That core includes the applications and database products Oracle has sold for decades. Using peer earnings multiples, this legacy business alone represents more than half the current stock price.

Breaking Down the Cloud Infrastructure Value

The real value gap appears in Oracle’s infrastructure business. This segment includes Infrastructure as a Service and Oracle Cloud Infrastructure.

At current prices, this business trades at just 3.5 times revenue. That’s a steep discount to so-called neocloud companies like CoreWeave and Nebius.

If the market valued Oracle’s IaaS business like those peers, it would be worth $135 per share. Combined with the $125 core business value, that suggests Oracle should trade well above $250.

The math depends on some assumptions about margins and expenses. KeyBanc estimates Oracle’s core business can hit 41-42% GAAP EBIT margins by 2028.

That’s based on historical performance. Oracle was generating margins in the high 30% range before ramping up cloud infrastructure investments.

Ader assigns most operating expenses to the faster-growing infrastructure business. The same goes for interest expenses, which he allocates primarily to IaaS.

Cloud Growth Drives Investment Case

Oracle has been pouring money into cloud infrastructure to compete with Amazon, Microsoft, and Google. That spending has weighed on near-term profitability.

But the investments are starting to pay off. Revenue grew 11.07% over the last twelve months to $61.02 billion.

The company trades at a P/E ratio of 37.95. Oracle has also raised its dividend for 12 consecutive years.

Goldman Sachs recently upgraded Oracle to Buy with a $240 target. The firm cited potential in AI compute workloads and cloud revenue growth.

UBS lowered its price target to $280 but kept a Buy rating. Jefferies maintained a $400 target and called Oracle a top pick.

Analyst price targets range from $175.14 to $400. The average suggests meaningful upside from current levels.

Michigan regulators approved plans for a new Oracle-OpenAI data center in Saline Township. The multi-billion dollar facility represents another cloud expansion project.

KeyBanc’s valuation exercise might feel like yelling into the void. But the firm sees value hiding in plain sight after the recent sell-off.

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