The last time I wrote about trading the options of Oracle Corporation (NYSE:ORCL) was on March 6 in a post titled “Going Bullish on the Cloud”. In that piece, I gave Oracle a $40 price target by June and I recommended June calls with a strike price of $40. Shares of Oracle traded above $40 in the first week of April, throughout May and until the expiry of the contract in June. Hence, option traders who had gotten into the trade on my recommendation had enough time to profit and sell the contract to close.
Growth By Strategic Acquisitions
Oracle got back into my radar after it announced its acquisition of Micros System for $5.3B yesterday. Oracle with its valuation of $190B is a provider of enterprise software and computer hardware products and services. The Company provides cloud services as well as software and hardware products to other cloud service providers, both public and private. Micros System is a provider of integrated software and hardware solutions to the Hospitality and Retail industries.
The acquisition of Micros Systems will further strengthen Oracle’s repositioning in Cloud, Mobile, Big data and Internet of Things even as the company assists hotels, food & beverage facilities and retailers upgrade their businesses with integrated solutions.
2014 has so far been a year of jaw-dropping acquisitions in the technology industry as established tech players acquire innovative, popular and fast-growing companies without minding the costs (Facebook’s $19B acquisition of WhatsApp is still fresh in our minds). However, the interesting thing about Oracle’s acquisition Micros System is that it provides a strategic acquisition at a great price. It might interest you to know that Oracle has spent only $40B to acquire 80 companies in the last 10 years.
In my last piece about Oracle, I posited that the company is working towards adapting to the inevitable change that Cloud computing is set to bring to business solutions by focusing on growth inorganically by acquisitions. The acquisition of Micros Systems brings the tally of Oracle’s acquisitions in the last 9 months to five.
Repositioning for Profitability
Oracle has consistently shown that it has the capacity to reposition itself in line with the broad changes taken place across its industry. The release of the Q4 2014 earnings (highlights below) last week drives this point home as Oracle becomes the second largest Cloud SaaS company in the world. You will notice the significant upswing in the Cloud software segment of the company.
Highlights of Q4 2014 Results
- Total revenues were up 3% to $11.3B
- Software and Cloud Revenues were up 4% to $8.9B
- GAAP Cloud software-as-a-service (SaaS) and platform-as-a-service (PaaS) revenues were up 25% to $322 million
- Non-GAAP SaaS and PaaS revenues were up 23% to $327 million
- Cloud infrastructure-as-a-service (IaaS) revenues were up 13% to $128 million
- New software licenses revenues were unchanged at $3.8 billion.
- Software license updates and product support revenues were up 7% to $4.7 billion
How to Trade ORCL Options going forward
The stock chart above shows how shares of Oracle have traded up 15% since the market opened in January. The RSI of 44.52 shows that the buying action on this stock has not yet started. A P/E ratio of 17.39 suggests that the stock is undervalued relative to its peers and that stock has upside potential because investors love buying undervalued stocks. I have a $45 price target on the stock and I recommend the ORCL Jan 2015 45.000 call (ORCL150117C00045000) at the asking price of $1.03.
— Daily Option Alerts