Analyst Note| Julie Bhusal Sharma |
On Dec 20, narrow-moat Oracle agreed to acquire narrow-moat Cerner for $95 per share ($29.4 billion in enterprise value) in an all-cash deal that will be the largest in Oracle's history. At first glance, we're not fans of this deal. We don't foresee enough synergies for Oracle to justify the price that the company is paying for Cerner. Further, we view Cerner's narrow moat as having a negative trend. Our negative outlook is a function of continuing healthcare system consolidation which we expect to favor best-of-breed EHR vendor Epic, which is also posting more wins than Cerner as hospitals refresh their legacy EHR systems from the early 2010s, sans consolidation. We will lower our fair value estimate for Oracle to $63 per share from $65, as we think Oracle is overpaying by roughly $5 billion in total. Even though Oracle's stock has dropped by 8% over the last five days to $92 per share, this still places Oracle in heavily overvalued territory. We caution that investors refrain from buying Oracle stock.