Oracle Corp Quarterly Valuation – June 2014 $ORCL

500px-Oracle_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Oracle Corp (ORCL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Oracle Corporation is a provider of enterprise software and computer hardware products and services. The Company provides cloud services as well as software and hardware products to other cloud service providers, both public and private. The Company’s software business consists of two segments: new software licenses and cloud software subscriptions and software license updates and product support. The Company’s hardware systems business consists of two operating segments: hardware systems products and hardware systems support. The Company’s services business consists of the remainder of its operating segments and offers consulting services, managed cloud services and education services. Effective March 13, 2013, it acquired Nimbula Inc. Effective February 6, 2014, Oracle Corp acquired the entire share capital of Responsys Inc.

ORCL Chart

ORCL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $40.82
MG Value $85.01
MG Opinion Undervalued
Value Based on 3% Growth $32.02
Value Based on 0% Growth $18.77
Market Implied Growth Rate 4.99%
Net Current Asset Value (NCAV) $0.57
PEmg 18.49
Current Ratio 3.39
PB Ratio 4.09

Balance Sheet – 2/28/2014

Current Assets $44,404,000,000
Current Liabilities $13,092,000,000
Total Debt $22,677,000,000
Total Assets $86,562,000,000
Intangible Assets $35,880,000,000
Total Liabilities $41,855,000,000
Outstanding Shares 4,483,000,000

Earnings Per Share

2014 $2.73
2013 $2.26
2012 $1.96
2011 $1.67
2010 $1.21
2009 $1.09
2008 $1.06
2007 $0.81
2006 $0.64
2005 $0.55
2004 $0.50

Earnings Per Share – ModernGraham

2014 $2.21
2013 $1.84
2012 $1.56
2011 $1.29
2010 $1.06
2009 $0.93

Dividend History

ORCL Dividend Chart

ORCL Dividend data by YCharts


Oracle is suitable for the Enterprising Investor but does not qualify for the Defensive Investor, who is concerned with the short dividend history and the high PB ratio.  The company passes all of the Enterprising Investor’s requirements, though.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Hewlett Packard Co. (HPQ) and ModernGraham’s valuation of Microsoft Corp (MSFT).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.06 in 2010 to $2.21 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 4.99% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.

Be sure to check out the previous ModernGraham valuations of Oracle Corp (ORCL) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Oracle Corp (ORCL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Oracle Corp (ORCL) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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