Stalled TikTok Deal Putting Lid on Oracle (ORCL)

Oracle Corporation (ORCL) still has not benefited from its highly touted deal for TikTok's U.S. assets, with legal and political disputes likely to persist into the Biden administration. In the meantime, the Commerce Department has advised that it will not enforce an order to shut down TikTok's U.S. operations, choosing to wait for an upcoming federal appeals court hearing. In addition, China will have the final say on an asset sale, unlikely to let TikTok's code be handed to the American government.

Key Takeaways

  • Oracle stock failed a breakout in October after the deal for TikTok U.S. assets ran into roadblocks.
  • Oracle is set to report second quarter 2021 earnings next week.
  • The TikTok closure order and deal developments could be market movers in the next few weeks.

The Trump administration has appealed a preliminary injunction against closure of the TikTok site, with oral arguments set for presentation at a Dec. 14 hearing. Meanwhile, the government has extended the deadline for ByteDance to sell TikTok’s U.S. assets to Friday, so there could be some fireworks prior to the weekend. However, the dispute has dropped off the financial pages since September, so it's hard to gauge Oracle's reaction to new events.

Oracle stock rallied to an all-time high when the deal was first announced in September but failed the breakout in October, with legal issues delaying the acquisition. It is now wobbling sideways in a holding pattern near resistance while shareholders hope for a meaningful catalyst prior to year end. Theoretically, that could happen today, but the need for China's final approval could limit buying power if a deal is finalized.

Earnings on Deck

The timing is nearly perfect, because Oracle reports fiscal second quarter 2021 earnings on Dec. 10, with analysts looking for a profit of $1.00 per share on $9.79 billion in revenue. If met, earnings per share (EPS) will mark an 11% profit increase compared to the same quarter in 2019. The stock closed unchanged after Oracle beat first quarter top- and bottom-line estimates in September and posted the all-time high at $62.60 a few days later.

Wall Street is not too enthusiastic about Oracle's outlook despite the potential acquisition, with a "Moderate Buy" rating based upon nine "Buy" and 12 "Hold" recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $50 to a Street-high $70, while the stock is set to open Friday's session about $4 below the median $63 target.

Earnings per share (EPS) are calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that are adjusted for extraordinary items and potential share dilution. The higher a company's EPS, the more profitable it is considered to be.

Oracle Long-Term Chart (2000 – 2020)

Chart showing the share price performance of Oracle Corporation (ORCL)

The stock completed a 15-year round trip into the 2000 bubble high in the mid-$40s in 2015 and pulled back in a rounded correction that completed the last leg of a massive cup and handle breakout in 2017. It posted a new high in 2019 and pulled back, testing the 50-month exponential moving average (EMA) for the fifth time since 2011. Buyers returned after the pandemic decline in the first quarter, lifting price back to resistance during the TikTok negotiations in September.

A massive rising channel has contained Oracle price action since March 2009. The stock reversed at channel resistance in 2019 and is now trading less than five points below that barrier, sharply limiting upside potential if a deal is consummated. Unfortunately for bulls, the monthly stochastic oscillator is telling a similarly bearish tale, engaged in a long-term sell cycle that predicts relative weakness through the first quarter of 2021.

A trading channel is drawn using parallel trendlines to connect a security's support and resistance levels within which it currently trades. A trading channel may also be known as a price channel.

The Bottom Line

Oracle stock is running in place at resistance while legal and political issues delay the TikTok asset deal.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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