Oracle’s Q3 and Outlook Fall Short of Our Expectations; Shares Overvalued Ahead of Cerner Deal

Oracle’s third quarter was marked by some bright spots--like in Oracle's Fusion cloud ERP and HCM offering--but ultimately came in as a disappointment. Oracle missed our top and bottom line expectations, with gross profit significantly contributing to the discrepancy. Coupled with results was the outlook for the upcoming fourth quarter, which was also underwhelming. Outlook assumed Cerner would be acquired after the upcoming fourth quarter. In our model, we assume the deal will close at the beginning of Oracle's fiscal 2023 and we continue to believe that the deal leaves much to be desired, with little synergies in sight. All considered, we are maintaining our fair value estimate for the narrow-moat stock at $63 per share. This leaves Oracle overvalued with shares trading at $76 in after hours.