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How Oracle's (ORCL) Cerner Buyout Could Affect its Ratings

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A few days back, Oracle (ORCL - Free Report) announced its intent to takeover Cerner Corporation (CERN - Free Report) in an all-cash deal worth $28.3 billion or $95 per share. The proposed takeover could mark the biggest acquisition for Oracle.

Bloomberg reported that if Oracle amasses huge debt for this acquisition, then it faces the risk of seeing its investment-grade ratings downgraded by all three major U.S. rating graders — S&P Global Ratings, Fitch Ratings and Moody’s Investors Service. The ratings could fall near close to the junk level, added Bloomberg. Citing Bloomberg estimates, the report stated that Oracle has nearly a debt of $79 billion.

As of Nov 30, 2021, Oracle had cash & cash equivalents and marketable securities of $22.84 billion, while non-current notes payable and other borrowings stood at $73.43 billion. However, Oracle is confident about retaining an investment-grade credit rating. 

Since the Cerner takeover announcement on Dec 20, shares of Oracle have dropped 2.1% and closed at $89.72 on Dec 23. In the past year, the company’s shares have gained 38.3% compared with industry’s growth of 37.1%.

The Cerner acquisition is expected to close in 2022, subject to regulatory, customary and other conditions.

 

How Cerner Benefits Oracle

Oracle is eyeing the growth opportunity in the healthcare space with the Cerner takeover. The company noted that the sector was valued at $3.8 trillion in the United States alone in 2020.

According to a Mordor Intelligence report, the global healthcare cloud computing market is expected to witness a CAGR of 14.1% between 2021 and 2026 and reach $52.3 billion.

Oracle is looking to combine its cloud offerings like Autonomous Database, Voice Digital Assistant user interface and low-code development tools with Cerner’s systems. The company will then migrate the systems to Oracle’s Gen2 Cloud, which will make the systems available all the time, thereby reducing downtime significantly.

Oracle is planning to utilize its “hands-free” voice assistant as the main user interface for Cerner’s clinical systems. This will save considerable time for the medical staff as opposed to typing.

Oracle is endeavouring to expand Cerner’s global footprint, following the buyout, which will eventually boost the tech giant’s top line.

Zacks Rank and Stocks to Consider

At present, Oracle currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Cirrus Logic (CRUS - Free Report) and Alphabet (GOOGL - Free Report) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Cirrus Logic's fiscal 2022 earnings is pegged at $5.37 per share, up 7.6% in the past 60 days. The long-term earnings growth rate of the company is pegged at 9.3%.

Cirrus Logics’ earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, the average surprise being 14.9%. Shares of the company have increased 11.2% year to date.

The Zacks Consensus Estimate for Alphabet’s 2021 earnings is pegged at $108.29 per share, up 6.3% in the past 60 days. The long-term earnings growth rate of the company is pegged at 25.8%.

Alphabet’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 41.5%. Shares of the company have surged 67.6% year to date.