Oracle Corporation (NASDAQ:ORCL) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Oracle Corp.’s analysis versus peers uses the following peer-set: Microsoft Corporation (NASDAQ:MSFT), SAP AG (NYSE:SAP), EMC Corporation (NYSE:EMC), VMware, Inc. (NYSE:VMW), Intuit Inc. (NASDAQ:INTU), Adobe Systems Incorporated (NASDAQ:ADBE), Citrix Systems, Inc. (NASDAQ:CTXS), Symantec Corporation (NASDAQ:SYMC) and CA, Inc. (NASDAQ:CA). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
Oracle Corp.’s current Price/Book of 3.7 is about median in its peer group. The market expects ORCL-US to grow at about the same rate as its chosen peers (PE of 15.9 compared to peer median of 19.6) and to maintain the peer median return (ROE of 24.0%) it currently generates.
The company attempts to achieve high profit margins (currently 27.6% vs. peer median of 18.3%) throughdifferentiated products. It currently operates with peer median asset turns of 0.5x. ORCL-US’s net margin is its highest relative to the last four years and compares to a low of 22.9% in 2010.
Changes in the company’s annual top line and earnings (4.2% and 16.8% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.
ORCL-US’s return on assets is above its peer median both in the current period (13.4% vs. peer median 9.0%) and also over the past five years (12.5% vs. peer median 9.3%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s gross margin of 80.6% is around peer median suggesting that ORCL-US’s operations do not benefit from any differentiating pricing advantage. However, ORCL-US’s pre-tax margin is more than the peer median (36.0% compared to 25.9%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
While ORCL-US’s revenues have grown faster than the peer median (16.9% vs. 8.9% respectively for the past three years), the market gives the stock an about peer median PE ratio of 15.9. This suggests that the market has some questions about the company’s long-term strategy.
ORCL-US’s annualized rate of change in capital of 19.4% over the past three years is higher than its peer median of 13.9%. This investment has generated an above peer median return on capital of 16.4% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.
ORCL-US has reported relatively strong net income margin for the last twelve months (27.6% vs. peer median of 18.3%). This margin performance combined with relatively low accruals (10.3% vs. peer median of 14.9%) suggests possible aggressive accounting and an overstatement of its reported net income.
ORCL-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. But this level of accruals is less than the peer median — which suggests that while the company is building reserves, it is doing so in a relatively modest manner compared to its peers.
Oracle Corp. provides enterprise software and computer hardware products and services. The company is organized into three businesses: Software, Hardware Systems and Services. The Software business is comprised of two operating segments: New Software Licenses and Software License Updates and Product Support. The New Software Licenses segment includes the licensing of database and middleware software, as well as applications software. Its software products are designed to operate on both single server and clustered server configurations and to support a choice of operating systems, including Oracle Solaris, Oracle Linux, Microsoft Windows and third party UNIX products. The database software is an enterprise database software, which is designed to enable the secure storage, retrieval and manipulation of all forms of data, including transactional data, business information, analytics, and unstructured data in the form of XML files, office documents, images, video, spatial and other specialized forms of data, such as human genomic and medical data. This software is used for a variety of purposes, including online transaction processing applications, data warehousing and business intelligence, as a document repository or specialized data store. The middleware software is an application infrastructure software product that is designed to form a reliable and scalable foundation on which customers can build, deploy, secure, access and integrate business applications and automate their business processes. Its Oracle Fusion Middleware suites and products, which are built on the Java technology platform, can be used as a foundation for custom, packaged and composite applications. The Fusion Middleware software is available in various software products and suites, including the following functional areas: application server and application grid, service-oriented architecture and business process management, business intelligence, identity and access management, data integration, content management, portals and user interaction and development tools. The application software consists of Oracle Fusion Applications, which are a comprehensive suite of modular and next-generation software applications that include enterprise resource planning, customer relationship management, supply chain management and enterprise project portfolio management. The Software License Updates and Product Support segment provides customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period and include Internet and telephone access to technical support personnel located in its global support centers, as well as Internet access to technical content through My Oracle Support. The Hardware Systems business consists of two operating segments: Hardware Systems Products and Hardware Systems Support. The Hardware Systems Products segment offerings include servers and storage products, networking components, operating systems and other hardware-related software. The segment products are designed to work in customer environments that may include other Oracle or non-Oracle hardware or software components. Its servers are designed for business critical applications and for customers having more computationally intensive needs. Storage products are designed to securely manage, protect, archive and restore customers’ mission critical data assets and consist of tape, disk, hardware-related software, including file systems software, back-up and archive software and storage management software, and networking for mainframe and open systems environments. Networking components and products are designed to connect and deploy server and storage clusters in data centers. Oracle Solaris operating system is designed to provide a reliable, secure and scalable operating system environment through a core feature development in kernel, networking, security, and file system technologies, as well as close integration with hardware features. The Hardware Systems Support segment offerings provide customers with software updates for the software components that are essential to the functionality of its server and storage products, such as Oracle Solaris, and can include product repairs, maintenance services, and technical support services. The Services Business consists of three segments: Consulting, Cloud Services and Education. The Consulting segment includes business and information technology strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. The Cloud Services segment includes certain of its Oracle Cloud Services offerings and technology, and Advanced Customer Services. The Oracle Cloud Services are designed to provide comprehensive software and hardware management and maintenance services for customers hosted at Oracle data center facilities, select partner data centers or physically on-site at customer facilities. The Advanced Customer Services provides support services, both onsite and remote to Oracle customers, to enable increased performance and higher availability of their products and services. The Education segment provides training to customers, partners and employees through a variety of formats, including instructor-led classes at its education centers, live virtual training, self-paced online training, training via CD-ROM, private events and custom training. This segment also offers a certification program certifying database administrators, developers, implementers, consultants and architects. Oracle was founded on June 16, 1977 by Lawrence Joseph Ellison, Robert Nimrod Miner and Edward A. Oates and is headquartered in Redwood City, CA.
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This article was written by abha.dawesar, and was originally posted on Capital Cube.