Is Oracle Still a Winner?

With shares of Oracle Corporation (NASDAQ:ORCL) trading at around $32.51, is ORCL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

It’s difficult to find a company that is loved by investors and employees. Then again, those to traits tend to go hand-in-hand. Yes, Oracle is one of those companies. On the employee rating and review site, Glassdoor.com, Oracle has a 3.2 of 5 rating. This is above average, and it indicates a relatively strong company culture. Employees are happy with their situation, which leads to increase production and low turnover rates. A decent 64 percent of employees would recommend the company to a friend. The most impressive stat from Glassdoor.com is that 80 percent of employees approve of CEO Larry Ellison.

Oracle Corporation develops, manufactures, markets, hosts, and supports database and middleware software, applications software, and hardware systems. Let’s take a look at some positives and negatives for the company.

Positives:

  • Held up well compared to peers in 2008/2009 (shows resiliency)
  • Strong company culture (as indicated above)
  • Analysts love the company: 27 Buy, 14 Hold, 1 Sell
  • Working with Microsoft in online and mobile search to go after Google (difficult task)
  • Increased cash position
  • Decreased long-term debt
  • Consistent improvements in annual revenue
  • Consistent improvements in annual earnings
  • Quality debt management
  • Strong margins
  • Strong cash flow
  • Oracle Cloud potential (designed so customers don’t have to make fundamental changes)
  • Acquiring Nimbula – an infrastructure management software company
  • Top-tier management

Negatives:

  • Customers might see Oracle Cloud as too expensive

Yes, only one negative. This should act as a clue as to what the opinion in the Conclusion will be.

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Oracle, Microsoft Corporation (NASDAQ:MSFT), and International Business Machines Corporation (NYSE:IBM). Oracle has a market cap of $153.24 billion, Microsoft has a market cap of $259.36 billion, and IBM has a market cap of $213.61 billion.

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ORCL

MSFT

IBM

Trailing   P/E

15.14

16.03

13.23

Forward   P/E

11.10

10.02

10.39

Profit   Margin

28.46%

21.58%

16.05%

ROE

24.29%

22.58%

82.86%

Operating   Cash Flow

$13.72 Billion

$30.61 Billion

 $19.14 Billion

Dividend   Yield

0.70%

3.00%

1.80%

Short   Position

0.90%

1.40%

1.40%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal         

The debt-to-equity ratio for Oracle is slightly weaker than the industry average of 0.30, but it’s certainly not reason for concern.

Debt-To-Equity

Cash

Long-Term Debt

ORCL

0.45

$33.41 Billion

$19.75 Billion

MSFT

0.19

$74.48 Billion

$14.76 Billion

IBM

1.74

$11.99 Billion

$33.40 Billion

 

T = Technicals Are Mixed

Oracle hasn’t performed well year-to-date, but the past year has been solid.

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1 Month

Year-To-Date

1 Year

3 Year

ORCL

1.63%

-2.46%

15.22%

25.83%

MSFT

12.46%

19.93%

1.88%

10.97%

IBM

-9.59%

0.52%

-1.81%

55.40%

 

At $32.51, Oracle is trading below its 50-day and 100-day SMA, and above its 200-day SMA.

50-Day   SMA

33.98

100-Day   SMA

33.94

200-Day   SMA

32.49

 

E = Earnings Have Been Strong                             

This is one of the very few companies throughout the broader market that has seen revenue and earnings improvements since 2009 without any hiccups whatsoever. This is an extremely impressive track record.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

22.43

23.25

26.82

35.62

37.12

Diluted   EPS ($)

1.06

1.09

1.21

1.67

1.96

 

When we look at the previous quarter on a year-over-year basis, we see a decline in revenue, but an improvement in earnings.

2/2012

5/2012

8/2012

11/2012

2/2013

Revenue   ($)in   billions

9.04

10.92

8.18

9.09

8.96

Diluted   EPS ($)

0.49

0.69

0.41

0.53

0.52

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Oracle operates in many areas. What stands out most about Oracle is that it always stays ahead of the curve. If trends support an industry somewhere in technology, then there’s a good chance Oracle will be there.

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Conclusion

Oracle is strong in almost every area. It’s also somewhat resilient to market corrections. The small yield is an added bonus. There are only a handful of safer plays in tech.

Oracle is an OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.