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Current Data
Current Price $24.95 PEG 1.3
Market Cap ($M) $125,029.9 EPS TTM ($) $1.15
Shares Outstanding (M) 5,010.0 P/E TTM 21.7X
Institutional Holdings % 59.9% EPS Estimated 2010 ($) $1.58
Insider Holdings % 23.5% P/Estimated EPS 15.8X
Beta 0.93 MA Value ($) $37.79
Latest Quarter Reported 11/30/2009 Dividend Yield % 0.8%
As the economic rebound further develops, the technology sector will play a leading
role. Oracle Corporation, a bellwether in the tech sector will be a prominent leader. We
believe there are a number of value drivers for the coming year:
The acquisition of Sun Microsystems will be completed. This will expand Oracle’s
product line to include not only hardware that is optimized to run Oracle
databases but also Sun’s open source software products.
Oracle continues to introduce new product such as the recently announced
Communications Marketing and Advertising product.
Analysts are placing too much emphasis on 3Q10 revenue and currency
adjustments. Given economic constraints and currency fluctuations, short term
results are inconsequential.
Summary
The P/E TTM of 21.7 is in line with the company’s seven year average P/E of
21.8X and below the industry median of 23.2X
Though sales are down about 1.3% for the TTM as compared to FY09, sales for
3Q10 are up about 4.5% over 3Q08.
Gross margin, at 81.1% are higher than those in any year since FY05. Similarly,
both operating and net margins are currently higher than in previous years.
Oracle’s financial condition is strong with a current ratio of 3.0X, interest
coverage at 13X and long-term debt to equity at a manageable 49.9%.
Recent Developments
Financial Analysis
Presented below are the balance sheets for Oracle Corporation for the twelve month
period ending November 30, 2009 and for the fiscal years ending May 31, 2005 through
2009.
As of November 30, 2009, Oracle’s assets totaled $53,833 million, up 13.5% from the
end of FY09. Current assets totaled $25,235 million, or 46.9 percent of total assets, and
consisted primarily of cash (27.7 percent of total assets). Since the end of FY09, the cash
balance of the company increased from $8,995.0 million to $14,919.0 million or 66
percent as of November 2009.
Current liabilities were $8,534.0 million as of November 30, 2009, or 15.9 percent of
total assets. Short-term debt and Other Current Liabilities were the largest current
liabilities of the company accounting for 1.9 percent and 13.5 percent of total liabilities.
Oracle is modestly leveraged, with $13,751.0 million of long-term debt at the end of
Oracle is modestly leveraged, with $13,751.0 million of long-term debt at the end
ofQ09, or approximately 25.5 percent of total liabilities and equity. Oracle’s long-term
debt increased in the past five years from $159.0 million at the end of FY05 to $13,751
million in 3Q10.
Due to consistent profitability, shareholders’ equity increased in each of the past five
years and for the twelve month period ending November 2009. Shareholders’ equity has
grown from $10,837 million at year end 2005 to $27,531.0 on November 30, 2009.
Income Statements
Presented below are the income statements for Oracle for the fiscal years 2005 through
2009 and for the twelve month period ending November 2009.
As presented, the Company reported increases in revenues in each of the past five
years, from $11,799.0 million in 2005 to $23,252.0 million in 2009. For the twelve
month period ending November 2009, Oracle shows a small decrease in revenue of
approximately 1.3 percent.
Cost of goods sold as a percentage of revenues decreased in four of the past five fiscal
years and again in the twelve month period ending November 2009. Operating expenses
ranged from 67.1 percent to 62.4 percent from FY05 to November 2009. For the twelve
month period ending November 2009, cost of goods sold was 18.9 percent of revenues,
and operating expenses were 62.4 percent of revenues.
The Company reported consistent profitability over the past five years. For the twelve
month period ending November 2009, net income was $5,802.0 million, or 25 percent
of revenues.
Comparative Ratios
The following table presents various financial and operating rations for Oracle
Corporation.
Liquidity
Quick Ratio (X) 3.00 2.00 1.80 1.40 1.70 1.00
Industry Median 1.10 1.30 1.40 1.50 1.50 1.40
Times Interest Earned (X) 13.00 13.40 20.90 18.50 29.50 31.00
Industry Median (1.50) (2.50) (2.00) (1.30) (0.80) (1.40)
Debt Management
Total Liabilities to Total Assets % 48.90 47.10 51.30 51.10 48.30 47.60
Industry Median 54.10 54.40 51.40 47.50 48.00 49.30
Asset Management
Receivables Turnover (X) 7.10 4.30 4.30 4.50 4.60 4.50
Industry Median 5.80 5.30 5.30 5.00 5.50 5.40
Valuation Conclusion
In placing a target price of $37.79, we place a P/E of 22X on the average FY11 earnings
estimates. This is consistent with Oracle’s long-term average multiple and is justified by
the Company’s consistent history of churning out profits.