In light of short-term fluctuations, I am looking at developments at two of our technology holdings that saw quite a bit of share-price volatility in response to recent quarterly earnings reports, explains Chris Quigley, value investing expert and contributing editor to The Prudent Speculator.
System software firm Oracle (ORCL) earned $0.71 per share in fiscal Q1 2019 (vs. $0.68 est.). ORCL had sales of $9.2 billion (vs. $9.3 billion est.). Although shares were volatile in extended hours trading, they closed the week up nearly 4%.
Oracle benefitted from growing market share, as customers opt to buy the Oracle Fusion ERP (Enterprise Resource Planning Cloud), rather than competing SAP and Workday systems.
Co-CEO Safra Catz said, "Operating cash flow over the last four quarters was a record $15.5 billion. Over the same four quarters, capital expenditures were $1.6 billion and free cash flow was $13.9 billion, up 10%, in USD. We have more than $60 billion in cash and marketable securities."
We continue to be encouraged by the possibilities in the cloud business and we believe that ORCL has an experienced leadership team that will drive top-line growth to the bottom line.
Oracle shares are again approaching all-time highs set in March, but we believe that the stock valuation is still very reasonable, based on our proprietary score and metrics like the 15x forward P/E ratio.
ORCL also has the aforementioned mountain of cash, while the long-term debt gives the company about $2 billion of net cash. Our target price has been bumped up to $59. ORCL currently yields 1.5%.
Memory maker Micron Technology (MU) posted earnings per share of $3.53, versus the $3.33 estimate, in fiscal Q4 2018. MU had sales of $8.4 billion (vs. $8.3 billion est.). Shares slipped 2.9% following the announcement, though volatile extended hours trading saw the stock jump to nearly $49 and plunge below $43.
CEO Sanjay Mehrotra commented, “Our fourth quarter results contributed to a year of unprecedented success for the company. With record profitability and revenue over $30 billion, Micron ended fiscal 2018 as the second largest semiconductor company in the U.S."
We still think that MU’s valuation is far from expensive. Analysts expect the company to earn $10.65 in fiscal 2019 (ends Aug 2019), translating to a forward P/E ratio just above four.
While we can certainly appreciate the historical aspect of memory and data storage volatility, and we respect that analysts now think the company will earn “only” $9.82 in fiscal 2020, we think that MU sits in a good spot for future growth.
We believe that solid state storage is the way of the future for its size, performance and energy saving properties. Our target price for MU is now $96.
