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Stock Strategist

Oracle's Bets in Telecom Are Underappreciated

Recent acquisitions of Tekelec and Acme Packet leverage the company's wide moat.

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We believe  Oracle's (ORCL) recent acquisitions of Acme Packet and Tekelec are largely underappreciated, and the company's investments in vertically focused applications provide opportunities for revenue growth while reinforcing the wide-moat database business and narrow-moat applications businesses. Our favorable assessment of Oracle's acquisition strategy is critical to our wide Morningstar Economic Moat Rating and our optimistic view of management's capital allocation.

Oracle is one of the widest-moat enterprise software firms we cover. We continue to have a fundamentally positive long-term view of the shares and see approximately 20% upside from the current share price to our $38 fair value estimate. Our view is supported by the firm's global advantages, prudent acquisition strategy, solid free cash flow generation, midteens returns on invested capital, and well-established dividend policy.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.