Oracle Upgraded to Overweight as a `Relative Safe Haven' During Downturn

Oracle was upgraded to overweight from neutral by JPMorgan, which calls the database-software and cloud-infrastructure giant a possible "relative safe haven" during an economic downturn.
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Oracle  (ORCL) - Get Report may have suffered through a "Lost Half-Decade," but a JPMorgan analyst on Friday upgraded the stock to overweight from neutral, saying the database-software and cloud-infrastructure company could be "a relative safe haven" during an economic downturn.

Shares of the Redwood Shores, Calif., company at last check were up 0.4% to $45.26.

Analyst Mark Murphy said in a note to investors that Oracle shares "have suffered through a 'Lost Half-Decade,' with the stock essentially flat from mid-June 2015 through yesterday."

Murphy also said, however, that "everything that screens so 'wrong' with this stock in a bull market or economic expansion flips around if we apply the different lens that is required for the different type of environment we might be entering into." 

"During an economic expansion phase, there is a lot of net new software spend to pursue, and Oracle has been left behind with subpar growth, as foreshadowed constantly by our survey work," Murphy said. 

"However, the opposite is true when the economy slows, and the creative net-new software spend dries up: Companies growing 70% can slow to 15% in a few quarters, and if they’re starting from 30 times revenues and an infinite cash-flow multiple, there is essentially no floor below the stock."

In contrast, Murphy said, Oracle "is advantaged by the stickiness of its software solutions (mission-critical, heavily customized enterprise-resource-planning and database) when the growth environment retracts."

Murphy does say his work "suggests Oracle faces plenty of fundamental challenges in the pursuit of net-new workload growth, as was evident in our last chief-information-officer survey."

"However," he said, "we think the presence of a resilient, sticky, and largely recurring revenue stream with relatively low viability risk (as compared to airlines, hotels, energy, restaurants, retailers, etc.), positions it well to relatively outperform in a slower economic environment and it could be a beneficiary of rotation into value as a relative safe haven within the software sector."