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Oracle

NYSE:ORCL
Snowflake Description

Adequate balance sheet and slightly overvalued.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
ORCL
NYSE
$209B
Market Cap
  1. Home
  2. US
  3. Software
2017/12/16
Company description

Oracle Corporation develops, manufactures, markets, sells, hosts, and supports application, platform, and infrastructure technologies for information technology (IT) environments worldwide. More info.


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3 Month History
ORCL
Industry
5yr Volatility vs Market

Value

 Is Oracle undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Oracle to its discounted cash flow analysis.value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Oracle is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Oracle's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Oracle's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Oracle is good value based on earnings compared to the US Software industry average.
  • Oracle is overvalued based on earnings compared to the US market.
Price based on expected Growth
Does Oracle's expected growth come at a high price?
  • Oracle is poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Oracle's assets?
  • Oracle is good value based on assets compared to the US Software industry average.
X
Value checks
We assess Oracle's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) ( Click here or on bar chart for details of DCF calculation. )
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. Oracle has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (1.27%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (2 Stage Free Cash Flow to Equity)

The calculations below outline how an intrinsic value for Oracle is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$52,010

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $15,244 × (1 + 2.47%) ÷ (10.35% – 2.47%)

Terminal value based on the Perpetuity Method where growth (g) = 2.47%:
$198,239

Present value of terminal value:
$121,153

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
$173,163 = $52,010 + $121,153

Value = Total value / Shares Outstanding ($173,163 / 4,173)

Discount to Share Price

Value per share:
$41.49

Current discount (share price of $48.3): -16.41%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.35% = 2.47% + (1.046 * 7.53%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value ($209,467,276,844).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

1.046 = 0.881 (1 + (1- 35%) (28.96%))

Levered Beta used in calculation = 1.046



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in USD.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (7.53%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Oracle expected to perform in the next 1 to 3 years based on estimates from 32 analysts?

The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Annual Growth Rate
6.3%
Expected annual growth in earnings.
Earnings growth vs Low Risk Savings
Is Oracle expected to grow at an attractive rate?
  • Oracle's earnings growth is expected to exceed the low risk savings rate of 4.5%.
Growth vs Market Checks
  • Oracle's earnings growth is positive but not above the US market average.
  • Oracle's revenue growth is positive but not above the US market average.
Annual Growth Rates Comparison
Analysts growth expectations
Super high growth metrics
High Growth Checks
  • Oracle's earnings are expected to grow by 6.3% yearly, however this is not considered high growth (20% yearly).
  • Oracle's revenue is expected to grow by 3.5% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occurred. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
  • Oracle is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

Improvement & Relative to industry
  • Performance (ROE) is expected to be above the current US Software industry average.
  • An improvement in Oracle's performance (ROE) is expected over the next 3 years.
X
Future performance checks
We assess Oracle's future performance by looking at:
  1. Is the annual earnings growth rate expected to beat the low risk savings rate, plus a premium to keep pace with inflation?
  2. Is the annual earnings growth rate expected to beat the average growth rate in earnings of the US market? (1 check)
  3. Is the annual revenue growth rate expected to beat the average growth rate in revenue of the US market? (1 check)
  4. Is the annual earnings growth rate expected to be above 20%? (1 check)
  5. Is the annual revenue growth rate expected to be above 20%? (1 check)
  6. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Oracle has a total score of 2/6, see the detailed checks below.

Note 1: We use GAAP Net Income Excluding Exceptional Items for our Earnings in all our calculations.

Full details on the Future part of the Simply Wall St company analysis model.

Past Performance

  How has Oracle performed over the past 5 years?

The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Oracle's growth in the last year to its industry (Software).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
  • Oracle's year on year growth rate is negative over the past 5 years, however the most recent earnings are above average.
  • Oracle's 1 year earnings growth exceeds its 5 year annual average (12.4% vs -0.3%)
  • Oracle's earnings growth has not matched the US Software industry average in the past year (12.4% vs 17.2%).
Earnings and Revenue History
Oracle's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
  • Poor return on shareholders funds (ROE < 20%) last year.
  • Oracle performed worse than the US Software industry average based on Return on Assets (ROA) last year.
  • Performance based on Return on Capital Employed (ROCE) has been diminishing over 3 years.
X
Past performance checks
We assess Oracle's performance over the past 5 years by checking for:
  1. Has earnings increased in past 5 years? (1 check)
  2. Has the earnings growth in the last year exceeded that of the Software industry? (1 check)
  3. Is the recent earnings growth over the last year higher than the average annual growth over the past 5 years? (1 check)
  4. Is the Return on Equity (ROE) higher than 20%? (1 check)
  5. Is the Return on Assets (ROA) above industry average? (1 check)
  6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Oracle has a total score of 1/6, see the detailed checks below.

Note: We use GAAP Net Income excluding extraordinary items in all our calculations.

Full details on the Past part of the Simply Wall St company analysis model.

Health

 How is Oracle's financial health and their level of debt?

A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

The boxes below represent the relative size of what makes up Oracle's finances.

The net worth of a company is the difference between its assets and liabilities.
Net Worth
  • Oracle is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
  • Oracle's cash and other short term assets cover its long term commitments.
Balance sheet
This treemap shows a more detailed breakdown of Oracle's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Assets
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
  • Low level of unsold assets.
  • Total debt is covered by total short term assets, assets are 1.3x debt.
Historical Debt
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
  • Oracle's level of debt (107.8% of total debt) compared to net worth is high (greater than 40%).
  • The level of debt compared to net worth has increased over the past 5 years (45.5% vs 107.8% today).
  • Total debt is well covered by annual operating cash flow (24%, greater than 20% of total debt).
  • Interest on debt is well covered by earnings (EBIT is 12.8x coverage).
X
Financial health checks
We assess Oracle's financial health by checking for:
  1. Are short term assets greater than short term liabilities? (1 check)
  2. Are short term assets greater than long term liabilities? (1 check)
  3. Has the debt to equity ratio increased in the past 5 years? (1 check)
  4. Is the debt to equity ratio over 40%? (1 check)
  5. Is the debt covered by short term assets? (1 check)
  6. Are earnings greater than 5x the interest on debt (if company pays interest at all)? (1 check)
  7. Oracle has a total score of 4/6, see the detailed checks below.


Full details on the Health part of the Simply Wall St company analysis model.

Dividends

 What is Oracle's current dividend yield, its reliability and sustainability?

Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Dividend payments
1.57%
Current annual income from Oracle dividends. Estimated to be 1.51% next year.
If you bought $2,000 of Oracle shares you are expected to receive $31 in your first year as a dividend.
Dividend Amount
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
  • Paying below low risk savings rate (2.25%).
  • Paying below markets top dividend payers (3.18%).
Annualized Historical and Future Dividends
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

We also check to see if the dividend has increased in the past 10 years.
  • Whilst dividend payments have been stable, Oracle has been paying a dividend for less than 10 years.
  • Dividend payments have increased, but Oracle only paid a dividend in the past 9 years.
Current Payout to shareholders
What portion of Oracle's earnings are paid to the shareholders as a dividend.
  • Dividends paid are thoroughly covered by net profit (7x coverage).
Future Payout to shareholders
  • Dividends after 3 years are expected to be well covered by net profit (4.4x coverage).
X
Income/ dividend checks
We assess Oracle's dividend by checking for:
  1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
  2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
  3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
  4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
  5. How sustainable is the dividend, can Oracle afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
  6. Oracle has a total score of 2/6, see the detailed checks below.


Full details on the Dividends part of the Simply Wall St company analysis model.

Management

 What is the CEO of Oracle's salary, the management and board of directors tenure and is there insider trading?

Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
CEO
Safra Catz, image provided by Google.
Safra Catz
COMPENSATION $40,729,965
AGE 55
TENURE AS CEO 3.3 years
CEO Bio

Ms. Safra Ada Catz has been the Chief Executive Officer of Oracle Corporation since September 17, 2014 and serves as its Principal Financial Officer. Ms. Catz served as the President of Oracle Corporation from January 2004 to September 2014 and served as its Chief Financial Officer since April 25, 2011. Ms. Catz served as Chief Financial Officer of Oracle Corporation from November 15, 2005 to September 2008 and also served as its Interim Chief Financial Officer from April 2005 to July 2005. Ms. Catz served as a Co-President of PeopleSoft, Inc. since December 30, 2004. She served as the President of Oracle Corporation from January 2004 to June 2005. She served as the Executive Vice President of Oracle Corp. from November 1999 to January 2004 and was responsible for Global Business Practices and Corporate Development. She served as Senior Vice President of Oracle Corp., from April 1999 to October 1999. Prior to joining Oracle, Ms. Catz was employed by Donaldson, Lufkin & Jenrette, a global investment bank which has since merged with Credit Suisse First Boston. At Donaldson, Lufkin & Jenrette, Ms. Catz served as the Managing Director from February 1997 to March 1999 and a Senior Vice President from January 1994 to February 1997 and previously held various investment banking positions since 1986. Ms. Catz has been a Director of Oracle Corporation since October 2001. She has been a Member of Executive Council of TechNet since March 14, 2013. Ms. Catz served as an Independent Non-Executive Director of HSBC Holdings plc from May 1, 2008 to December 31, 2015. She served as a Director of PeopleSoft Inc. since December 30, 2004 and Stellent Inc. since December 12, 2006. She served as a Director of Hyperion Solutions Corp. since April 14, 2007.

CEO Compensation
  • Safra's compensation has been consistent with company performance over the past year.
  • Safra's compensation appears reasonable.
Management Team Tenure

Average tenure and age of the Oracle management team in years:

10.3
Average Tenure
58.6
Average Age
  • The average tenure for the Oracle management team is over 5 years, this suggests they are a seasoned and experienced team.
Management Team

Larry Ellison

TITLE
Co-Founder
COMPENSATION
$41M
AGE
73
TENURE
40.5 yrs

Safra Catz

TITLE
CEO, Principal Financial Officer & Director
COMPENSATION
$41M
AGE
55
TENURE
3.3 yrs

Mark Hurd

TITLE
CEO & Director
COMPENSATION
$41M
AGE
60
TENURE
3.3 yrs

Thomas Kurian

TITLE
President of Product Development
COMPENSATION
$36M
AGE
50
TENURE
2.9 yrs

Karl Braitberg

TITLE
Senior Vice President of Worldwide Operations

William West

TITLE
Executive VP
AGE
55
TENURE
10.7 yrs

Mark Sunday

TITLE
Senior VP & Chief Information Officer
AGE
62

Ken Bond

TITLE
Senior Vice President of Investor Relations

Dorian Daley

TITLE
Executive VP
AGE
58
TENURE
10.2 yrs

Doug Suriano

TITLE
Senior VP & GM-Communications
AGE
56
TENURE
1.3 yrs
Board of Directors Tenure

Average tenure and age of the Oracle board of directors in years:

10
Average Tenure
65.7
Average Age
  • The average tenure for the Oracle board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors

Larry Ellison

TITLE
Co-Founder
COMPENSATION
$41M
AGE
73
TENURE
3.3 yrs

Safra Catz

TITLE
CEO, Principal Financial Officer & Director
COMPENSATION
$41M
AGE
55
TENURE
16.2 yrs

Mark Hurd

TITLE
CEO & Director
COMPENSATION
$41M
AGE
60
TENURE
7.3 yrs

Jeff Henley

TITLE
Vice Chairman
COMPENSATION
$4M
AGE
72
TENURE
3.3 yrs

Michael Boskin

TITLE
Lead Independent Director
COMPENSATION
$909K
AGE
71

Jeff Berg

TITLE
Independent Director
COMPENSATION
$636K
AGE
70
TENURE
20.8 yrs

Bruce Chizen

TITLE
Independent Director
COMPENSATION
$660K
AGE
62
TENURE
9.4 yrs

Renée James

TITLE
Independent Director
COMPENSATION
$601K
AGE
52
TENURE
2 yrs

Naomi Seligman

TITLE
Independent Director
COMPENSATION
$492K
AGE
79
TENURE
12.1 yrs

Hector Garcia-Molina

TITLE
Independent Director
COMPENSATION
$470K
AGE
63
TENURE
16.2 yrs
Recent Insider Trading
  • Oracle insiders have only sold shares in the past 3 months.
Who owns this company?
X
Management checks
We assess Oracle's management by checking for:
  1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
  2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
  3. Is the average tenure of the management team less than 2 years? (1 check)
  4. Is the average tenure of the board of directors team less than 3 years? (1 check)
  5. Oracle has a total score of 0/6, this is not included on the snowflake, see the detailed checks below.


Note: We use the top 6 management executives and board members in our calculations.

Note 2: Insider trading include any internal stakeholders and these transactions .

Full details on the Management part of the Simply Wall St company analysis model.

Company News

Company Info

Map
Description

Oracle Corporation develops, manufactures, markets, sells, hosts, and supports application, platform, and infrastructure technologies for information technology (IT) environments worldwide. It provides services in three primary layers of the cloud: Software as a Service, Platform as a Service, and Infrastructure as a Service. The company licenses its Oracle Database software, which enables storage, retrieval, and manipulation of data; and Oracle Fusion Middleware software to build, deploy, secure, access, and integrate business applications, as well as automate their business processes. It also provides software for mobile computing to address the development needs of businesses; Java, a software development language; and big data solutions. In addition, the company offers human capital and talent management, enterprise resource planning, customer experience and customer relationship management, procurement, project portfolio management, supply chain management, business analytics and enterprise performance management, and industry-specific application software, as well as financial management and governance, risk, and compliance applications. Further, it provides Oracle Engineered Systems, servers, storage, industry-specific hardware, management software, and hardware support products, as well as operating systems, and virtualization and other hardware-related software. Additionally, the company offers customers software license updates and product support contracts; database, middleware, and development software, as well as cloud-based platform and infrastructure; and IT strategy alignment, enterprise architecture planning and design, initial software implementation and integration, application development and integration, security assessments, and ongoing software enhancements and upgrade, as well as customer support and education services. The company was founded in 1977 and is headquartered in Redwood City, California.

Details
Name: Oracle Corporation
Ticker: ORCL
Exchange: NYSE
Founded: 1977
Market Cap: $209,467,276,844
Shares outstanding: 4,173,486,289
Website: http://www.oracle.com
Address: Oracle Corporation
500 Oracle Parkway,
Redwood City,
California, 94065,
United States
Listings
Exchange Symbol Ticker Symbol Security Exchange Country Currency Listed on
NYSE ORCL Common Stock New York Stock Exchange US USD 12. Mar 1986
DB ORC Common Stock Deutsche Boerse AG DE EUR 12. Mar 1986
XTRA ORC Common Stock XETRA Trading Platform DE EUR 12. Mar 1986
SWX ORCL Common Stock SIX Swiss Exchange CH CHF 12. Mar 1986
SNSE ORCL Common Stock Santiago Stock Exchange CL USD 12. Mar 1986
BMV ORCL * Common Stock Bolsa Mexicana de Valores MX MXN 12. Mar 1986
BOVESPA ORCL34 BDR EACH REPR 1 COM USD0.01 Bolsa de Valores de Sao Paulo BR BRL 29. Dec 2011
BASE ORCL CEDEAR EACH REPR 1/3 USD0.01 Buenos Aires Stock Exchange AR ARS 13. Sep 2000
Number of employees
Current staff
Staff numbers
138,000
Oracle employees.
Industry
Industry: Systems Software
Sector: Software