Followers | 679 |
Posts | 141044 |
Boards Moderated | 36 |
Alias Born | 03/10/2004 |
Monday, August 14, 2023 11:53:19 AM
By: Barchart | August 14, 2023
Oracle Corp (ORCL) stock still looks cheap to value buyers, given its 20x forward P/E multiple and Oracle's massive FCF generation. ORCL stock has been treading water lately, which is ideal for selling short out-of-the-money (OTM) put options.
For example, ORCL closed at $113.06 per share on Friday, Aug. 11, down just 4.1% from the end of July when it closed at $117.91. That means that traders who sell short OTM puts can collect extra income with near-term expiration plays.
In fact, I discussed this situation in our recent July 25, 2023, Barchart article, “Oracle Corp Stock Is Treading Water - Ideal For Traders Shorting OTM Puts.”
Huge Free Cash Flow
For example, I pointed out that Oracle made $8.47 billion in its fiscal Q4 ending May 30, on a trailing 12-month (TTM) basis. That was up 68% from the $5.028 billion in TTM FCF it made a year ago. This is because Oracle benefits from both the growth in cloud spending and as well as from AI-related initiatives.
It also works out to a 16.9% FCF margin based on its $50 billion in fiscal 2023 TTM revenue. So, going forward, we can expect that Oracle will generate a pile of FCF.
Oracle Corp - FCF Growth - Fiscal Q4 on a TTM basis
For example, analysts surveyed by Seeking Alpha forecast that revenue ending May 2024 will reach $54.11 billion, up 8.2% from $50 billion last year. So, if we apply this 17% FCF margin against this revenue projection, FCF could hit $9.2 billion.
That FCF estimate represents about 3.0% of its $307 billion market capitalization. Typically tech stocks like this can trade with a 2% FCF yield to a 3.33% yield. This is the same as trading at 30x to 50x FCF.
Therefore, on average we might expect ORCL stock to trade at least at 40x FCF, i.e., $368 billion (i.e., 40x $9.2 billion). That represents a potential 20% upside (i.e., $368b/$307b-1). In other words, ORCL stock could move up to $135.62 (i.e., 20% higher than $113.06).
One way to conservatively play this is to short out-of-the-money (OTM) puts, along with holding ORCL stock.
Shorting OTM ORCL Puts
For example, traders can look at selling short Sept. 1, 2023, expiration puts at the $109 strike price and then collect $1.19 per contract. That strike price is 3.59% below today's spot price of $113.06 per share (Aug. 11 close).
ORCL Puts - Expiring Sept. 1, 2023 - Barchart - As of Aug. 11, 2023
Here is how this works. First, the trader puts $10,900 or more in their brokerage account, either with cash and/or a mix of cash and margin. For example, holding 100 shares of ORCL stock will provide a certain amount of margin (i.e., typically 50%).
Next, they can enter an order to “Sell to Open” one put contract at $109 per share. The brokerage account will then immediately receive $119.00 from selling short the $109 put strike price.
OTM Put Yields And Returns
So, that represents about 1.09%, i.e., $119/$10,900 invested, with just 3 weeks until expiration. So, if that trade can be repeated every 3 weeks, it works out to an annualized 18.53% rate of return (i.e., 1.09% x 17x).
There is always the risk that ORCL could fall to $109 or below on or before Sept. 1. However, at least in that situation, the investor does not have to sell his shares in ORCL. They would be required to use the $10,900 to purchase 100 shares at $109 per share. That may or may not result in an unrealized loss, but it could also potentially lower the investor's average cost.
To help avoid this situation, a more conservative play would be to sell short the $108 strike price, or even lower. That strike premium is at $0.97, which represents a lower 0.90% premium yield (i.e., $0.97/$108).
And keep in mind that even if the short put play gets exercised, the investor can always turn around and sell short OTM calls, known as “covered call” plays. This can help ameliorate any unrealized loss.
The bottom line is that given Oracle's huge free cash flow, ORCL stock's upside is significant. One way to conservatively play this is to short OTM put options for extra income.
Read Full Story »»»
DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
• DiscoverGold
Recent ORCL News
- Oracle Database 23ai Brings the Power of AI to Enterprise Data and Applications • PR Newswire (US) • 05/02/2024 03:00:00 PM
- Oracle and TIM Collaborate to Accelerate Cloud Adoption in Italy • PR Newswire (US) • 05/02/2024 12:51:00 PM
- Oracle Advances Global RTSM Capabilities to Help Sponsors • PR Newswire (US) • 05/01/2024 12:58:00 PM
- Oracle Energy and Water Awards Recognize Utilities Leading in Industry Transformation and Innovation • PR Newswire (US) • 05/01/2024 12:00:00 PM
- CPS Energy to Power its Operations with Oracle Cloud • PR Newswire (US) • 04/30/2024 12:15:00 PM
- Oracle Introduces New AI Capabilities to Help Organizations Boost Sales • PR Newswire (US) • 04/25/2024 01:48:00 PM
- Oracle U.S. Government Cloud Customers Accelerate Sovereign AI with NVIDIA AI Enterprise • PR Newswire (US) • 04/25/2024 12:00:00 PM
- Oracle Helps Federal Agencies Optimize Finance in the Cloud • PR Newswire (US) • 04/25/2024 12:00:00 PM
- Coca-Cola and Microsoft Sign Billion-Dollar Agreement, Apple Event Set for May 7, and More News • IH Market News • 04/24/2024 11:28:02 AM
- Oracle Protects Healthcare Customers Against Cyberattacks • PR Newswire (US) • 04/23/2024 08:15:00 PM
- Major Global Businesses Adopt Oracle Database@Azure Worldwide • PR Newswire (US) • 04/23/2024 12:00:00 PM
- Oracle Helps Healthcare Organizations Solve Critical Supply Chain, HR, and Finance Challenges • PR Newswire (US) • 04/23/2024 12:00:00 PM
- Auxilio Mutuo Hospital Selects Oracle Health's EHR to Improve Patient Experience • PR Newswire (US) • 04/22/2024 12:15:00 PM
- Oracle Cloud Service Enables Banks to Manage Climate Change Risk Across Portfolios • PR Newswire (US) • 04/22/2024 12:00:00 PM
- Oracle Cloud Secret Impact Level 6 Regions for U.S. Department of Defense • PR Newswire (US) • 04/22/2024 12:00:00 PM
- Oracle and Reka Collaborate to Advance AI Innovation • PR Newswire (US) • 04/18/2024 12:00:00 PM
- Apple to Invest $250 Million in Singapore Expansion, Oracle Commits $8 Billion to Japan Infrastructure, and More News • IH Market News • 04/18/2024 11:11:52 AM
- Oracle to Invest More Than $8 Billion in Cloud Computing and AI in Japan • PR Newswire (US) • 04/18/2024 01:00:00 AM
- Oracle Named a Leader in 2024 Gartner® Magic Quadrant™ for Transportation Management Systems for 17th Time • PR Newswire (US) • 04/10/2024 12:00:00 PM
- New Oracle AI-powered Cloud Service Helps Banks Mitigate Anti-Money-Laundering Risks • PR Newswire (US) • 04/08/2024 12:00:00 PM
- Oracle and Palantir Join Forces to Deliver Mission Critical AI Solutions to Governments and Businesses • PR Newswire (US) • 04/04/2024 12:00:00 PM
- Gas South Fuels Customer Experience with Oracle Cloud • PR Newswire (US) • 03/25/2024 12:00:00 PM
- Round Rock Independent School District Police Department Deploys Oracle Public Safety Suite to Enhance Incident Response Capabilities • PR Newswire (US) • 03/21/2024 12:00:00 PM
- Oracle Releases Java 22 • PR Newswire (US) • 03/19/2024 01:30:00 PM
- Administrative Office of the United States Courts (AOUSC) selects Oracle as Cloud Service Provider • PR Newswire (US) • 03/19/2024 12:00:00 PM
NanoViricides Reports that the Phase I NV-387 Clinical Trial is Completed Successfully and Data Lock is Expected Soon • NNVC • May 2, 2024 10:07 AM
ILUS Files Form 10-K and Provides Shareholder Update • ILUS • May 2, 2024 8:52 AM
Avant Technologies Names New CEO Following Acquisition of Healthcare Technology and Data Integration Firm • AVAI • May 2, 2024 8:00 AM
Bantec Engaged in a Letter of Intent to Acquire a Small New Jersey Based Manufacturing Company • BANT • May 1, 2024 10:00 AM
Cannabix Technologies to Deliver Breath Logix Alcohol Screening Device to Australia • BLO • Apr 30, 2024 8:53 AM
Hydromer, Inc. Reports Preliminary Unaudited Financial Results for First Quarter 2024 • HYDI • Apr 29, 2024 9:10 AM