Key Takeaways
- Oracle shares fell 7% today after it filed to sell $10 billion of common stock and $10 billion of senior notes.
- The sale uses up the $20 billion cap on new raises through fiscal 2030, the cap that sent the stock up 12% last week.
- Half of it is new stock, on top of the $19.9 billion of shares Oracle sold from February to August.
- The dilution is small. What matters now is whether Oracle turns free cash flow positive in the second half of fiscal 2028 without raising again.
Oracle (ORCL) is down 7% today. Before the open, it filed to sell $10 billion of common stock and $10 billion of senior notes.
Nobody should be surprised by the raise. At last Wednesday’s Investor Day, Oracle capped new capital raises at $20 billion through fiscal 2030, split evenly between stock and debt, and the stock jumped 12% the next day.
Stephens even upgraded Oracle to Overweight this morning. It raised its target to $213 from $185, arguing that Investor Day had answered the funding questions. Oracle’s shelf filing came 23 minutes later.
Talk about timing.
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Long way to go
That $20 billion is supposed to carry Oracle through the peak of its spending. Management forecast positive free cash flow in the second half of fiscal 2028 and more than $30 billion of it in fiscal 2029, once capex peaks in fiscal 2027 and 2028.
That’s a long climb from negative $23.7 billion of free cash flow in fiscal 2026. Analysts’ estimates show how far Oracle still has to go:
Selling stock at a discount
The new stock is worth less than 3% of Oracle’s market value, and I’d take that over $20 billion more of bonds. Oracle’s total debt, leases included, was $169.1 billion at Aug. 31, more than double the $75.9 billion it had in fiscal 2022.
S&P cut Oracle to BBB- in July, one step above junk. Its credit default swaps now trade more like a high-end junk rating, according to S&P Global Market Intelligence’s Gavan Nolan. Keeping the investment-grade rating is worth a little dilution.
The catch is the price. Oracle traded at 15x forward earnings at Friday’s close, against a five-year average of 21x:
At this morning’s price, it’s about 14x.
Oracle has no room left to miss
I suspect the real worry for investors is that Oracle has nothing left under its own cap. Still, if the free cash flow plan holds, a stock at about 14x forward earnings looks cheap to me.
Pat Nerney, head of investment solutions at Dynasty Financial Partners, told CNBC in an email: “If they have to come back to market in the back half of ’27 after telling everyone this was the last of the capital needed … look out.”
The first test comes with Oracle’s second-quarter results in December.
So what is Oracle stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
