What next for Oracle, IBM and Dell? – The Property Chronicle
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What next for Oracle, IBM and Dell?

The Macro View

I had originally recommended Oracle as a turnaround candidate but the slow growth of its legacy database business and execution missteps in its transition to cloud computing solutions meant the House of Samurai Larry was dead money in the past three years. Even I got bored and sold the shares, preferring the fabulous momentum/EPS growth of Microsoft and even SAP. Yet Oracle was a fairy tale on NASDAQ in June. The shares skyrocketed 13% once Oracle finally beat Street estimates on revenue, EPS and cloud momentum.

True, revenue growth of 1.1% is hardly enough to make me turn cartwheels with joy but non GAAP EPS did rise by 21% to $1.16 a share. So it is entirely possible that Oracle delivers $40 billion revenues in 2019, with about $4 in earnings per share. This means it is a software Cinderella at 14.8 times earnings when Mister Softy, the fabled Evil Empire of Redmond, commands 35 times earnings. All is not fine and dandy for Oracle. King Dollar and China trade tensions hits revenue growth. Management guidance is modest at a mere 1 – 3% revenue growth in constant currency terms.

If Mark Hurd and Safra Katz manage this model target, non GAAP earnings should grow at 14 – 16%. Insider Monkey estimates that 52% of hedge funds owned Oracle shares or call options, so I am unwilling to commit new money at 59 on a crowded trade even though I accept the fact that new cloud products/revenue mix will goose EPS growth in the next six months. At 8200, I consider the NASDAQ inflated and am convinced I can buy Oracle a lot cheaper, ideally at 50 – 52 with the help of CBOE options strategies. Oracle’s acolytes include some friends I truly respect in equities investing, Rich Pzena, Dr. David Shaw, Dan Yactman. Yet it is worth waiting for a more opportune entry level.

IBM’s $34 billion acquisition of open source software vendor Red Hat is Big Blue’s biggest takeover deal ever. Red Hat will be unquestionably the crown jewel brand in IBM’s cloud and cognitive software franchise. Even though the Street is still skeptical on her leadership, CEO Ginni Rometty has boosted cloud revenue sixfold to 25% of its total revenues in the past five years. Red Hat will operate as a separate brand within IBM and will add a 15% subscription/services growth sizzle to IBM’s top line.

The Macro View

About Matein Khalid

Matein Khalid

Matein Khalid is Chief Investment Officer and Partner at Asas Capital. He is responsible for global investment strategies, merchant banking, and the development of the multi-family office investment platform, advising ultra-high net worth royal and family offices in the UAE on global equities markets and foreign exchange.

Articles by Matein Khalid

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