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Mizuho Reiterates 'Outperform' on Oracle, Citing Attractive Risk/Reward Profile
Summary
Mizuho has maintained its Outperform rating and $320 price target on Oracle, highlighting the stock's discounted valuation and strengthening execution in its cloud infrastructure business as key drivers for a potential re-rating.
Mizuho reiterated its Outperform rating and $320 price target for Oracle (NYSE: ORCL) in a note Tuesday, arguing that the software giant's shares present "one of the most attractive risk/reward profiles" in its coverage. The firm points to a valuation at multi-year lows combined with strengthening business execution as key factors for its positive outlook.
Analyst's Thesis
According to Mizuho analyst Siti Panigrahi, Oracle's shares are trading at a significant discount to its infrastructure peers despite exhibiting superior growth. The stock is valued at approximately 14x its calendar year 2027 non-GAAP earnings per share (EPS).
Panigrahi noted that Oracle's current valuation of about 15x next-twelve-months (NTM) EPS is well below its five-year and three-year historical averages of 21x and 25x, respectively. This valuation gap, coupled with two consecutive strong quarters, positions the stock for a "durable re-rate higher," according to the note.
Cloud Capacity and Financial Strength
Mizuho highlighted Oracle's progress in expanding its cloud capacity and securing funding. The company is expected to bring approximately 1GW of new capacity online in the first quarter of fiscal 2027, nearly matching the roughly 1.2GW planned for all of fiscal 2026.
AdOn the financial side, Oracle has maintained its investment-grade credit rating despite a recent S&P downgrade to BBB-. The firm's fundraising plans for fiscal 2027 include $40 billion in equity ATM (at-the-market) capacity. Mizuho believes the market is underappreciating the impact of Oracle's success with bring-your-own-cloud (BYOC) and pre-paid contracts, which help reduce the burden on its balance sheet.
Future Outlook
The analyst projects that Oracle's peak capital expenditure years will be fiscal 2027 and 2028. Following this investment cycle, free cash flow is forecast to turn positive, reaching $8 billion in fiscal 2029 and surging to $41 billion in fiscal 2030.
Mizuho also identified the Applications business, led by the Cerner health IT unit, as an "underappreciated leg of the thesis." This segment's deferred revenue grew 16% in the fourth quarter, outpacing the 10% in-quarter growth for software-as-a-service (SaaS), signaling strong future demand.
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