Oracle Corporation (ORCL)

Equity
US
Technology

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Very strong margins and returns

Overvalued vs peers

Decent dividends

Company profileOracle Corporation offers products and services that address enterprise information technology environments worldwide. Its Oracle cloud software as a service offering include various cloud software applications, including Oracle Fusion cloud enterprise resource planning (ERP), Oracle Fusion cloud enterprise performance management, Oracle Fusion cloud supply chain and manufacturing management, Oracle Fusion cloud human capital management, Oracle Advertising, and NetSuite applications suite, as well as Oracle Fusion Sales, Service, and Marketing. The company also offers cloud-based industry solutions for various industries; Oracle application licenses; and Oracle license support services. In addition, it provides cloud and license business' infrastructure technologies, such as the Oracle Database, an enterprise database; Java, a software development language; and middleware, including development tools and others. The company's cloud and license business' infrastructure technologies also comprise cloud-based compute, storage, and networking capabilities; and Oracle autonomous database, MySQL HeatWave, Internet-of-Things, digital assistant, and blockchain. Further, it provides hardware products and other hardware-related software offerings, including Oracle engineered systems, enterprise servers, storage solutions, industry-specific hardware, virtualization software, operating systems, management software, and related hardware services; and consulting and customer services. The company markets and sells its cloud, license, hardware, support, and services offerings directly to businesses in various industries, government agencies, and educational institutions, as well as through indirect channels. Oracle Corporation was founded in 1977 and is headquartered in Austin, Texas.

Valuation: Overvalued

Multiple

TTM

NTM

P/E

31.70

31.80

PEG

5.10

P/B

60.10

20.10

P/S

6.40

6.30

P/FCF

27.60

17.60

EV/EBITDA

19.40

28.30

Based on key historical and expected multiples, the stock is overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 2ppts and its growth accelerated by 6ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 149 and suggests 21% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 160.0. This translates into 30% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 105.0. This is equivalent to 15% downside potential in the worst case.

Profitability: Very strong

RoE

Oracle Corporation reported a return on equity (RoE) of 212.8% in the last 12 months, down from 3368.1% in FY23. The market consensus projects an RoE of 149.6% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 7.8% in the last 12 months, an increase from 7.7% in FY23. The market analysts predict that RoA will be -6.2% in FY24, though below its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 9.6%, below the peers. The consensus estimate for FY24 for RoCE is -11.2%, again behind the peers.

Net margin

EBITDA margin

Historically, ORCL has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 20.3%, a growth from 19.6% in FY23. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 40.8% in the last 12 months, up from 39.7% in FY23.

RoIC / WACC = 1.6(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.6 in the past several years. This ratio implies a good shareholder value creation.

Growth: Average

Revenue

EBITDA

EPS

Free cash flow

ORCL reported revenue of USD 52 510mn in the last 12 months, up 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 5% from FY23 to USD 3.90. Market expects EPS to reach USD 3.81368 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been weak. Net income has grown only slightly in recent years. The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue, EBITDA and EPS dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note robust profitability and solid return on capital, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, and an unfavourable capital structure.

Volatility: Negligible

In normal market circumstances, ORCL is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal.

Stress-test: Negligible

In highly turbulent market conditions, ORCL is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

ORCL boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually quite stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.