With shares of Oracle Corporation (NASDAQ:ORCL) trading at around $34.16, 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
We'll begin with the most important quote of all, which was written on Glassdoor.com by an Oracle employee:
"Company is global and is focusing on hiring outside the US. Even though the margin is very high, this company is bent on increasing its margin every quarter, even at the expense of employees and customers."
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The next quote relates to Oracle Cloud, which has 25 million users per day. Oracle recently announced the latest release of Oracle Service Cloud, which will offer robust support for mobile. Stephanie Arnette, Global Lead for Oracle Customer Experience, Accenture, stated:
“Oracle Service Cloud is a core component of our Application Services for Oracle Customer Experience Suite, which help clients leverage investments in their CRM systems with lower costs and increased flexibility. Our expertise in Software as a Service implementations supported with cloud factories, tools, and methods, combined with a longstanding alliance with Oracle, have allowed us to build our Oracle Service Cloud implementation capabilities that provide our clients with a strong framework for success. We’re excited to see continued investments from Oracle with the May 2013 release, including robust mobile capabilities that can help our clients stay competitive.”
David Vap, Group Vice President Product Development, Oracle, said:
“The new release of Oracle Service Cloud with Oracle RightNow Mobile Agent App specifically addresses and solves important pain points for the mobile employee. Organizations will discover increased efficiency through untethered access to real-time, up-to-date contact records and service history information, ensuring interactions with customers are timely, relevant, and engaging. This helps reduce time to resolution, in turn driving customer satisfaction and building customer loyalty through strengthened relationships.”
In regards to Oracle and Dell's recently expanded strategic alliance, Marius Haas, president of enterprise solutions for Dell, stated:
"Dell is growing fast in the datacenter and gaining market share across the world in our three core businesses. In part, this success is due to the fact we are focused on building and optimizing Dell infrastructure to help customers run their core mission-critical workloads. Today's agreement with Oracle greatly expands this commitment. By combining Oracle's strong position in the database and business applications markets with Dell's leadership in industry-standard servers, data center storage, and networking, we're combining the best of both worlds to deliver innovative solutions to customers that deliver superior performance, lower costs, and increased value."
Oracle President Mark Hurd, stated:
"This partnership with Dell is an extension of Oracle's engineered systems strategy where we simplify IT and reduce integration costs by delivering hardware and software together. We believe that by working together, Dell will gain significant market share by delivering to its customers an integrated, optimized solution designed to deploy business critical applications. This is just the beginning of a lot of great things to come."
The chart below compares basic fundamentals for Oracle, International Business Machines (NYSE:IBM), and Microsoft Corporation (NASDAQ:MSFT).
| ORCL | IBM | MSFT | |
| Trailing P/E | 15.89 | 14.22 | 17.96 |
| Forward P/E | 11.69 | 11.24 | 11.38 |
| Profit Margin | 28.46% | 16.05% | 21.58% |
| ROE | 24.29% | 82.86% | 22.58% |
| Operating Cash Flow | 13.72B | 19.32B | 30.61B |
| Dividend Yield | 0.70% | 1.80% | 2.60% |
| Short Position | 1.10% | 1.60% | 1.20% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Oracle has been a steady performer for many years. Over the past year, it has outperformed IBM and Microsoft. However, Microsoft has been the big winner in this group year-to-date. It should also be noted that Microsoft offers the highest yield at 2.60 percent whereas IBM yields 1.80 percent, and Oracle yields 0.70 percent.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| ORCL | 2.19% | 2.37% | 32.46% | 53.13% |
| IBM | 1.20% | 8.50% | 10.87% | 69.52% |
| MSFT | 5.15% | 32.94% | 26.66% | 41.15% |
At $34.16, Oracle is trading above its averages.
| 50-Day SMA | 33.52 |
| 200-Day SMA | 33.72 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Oracle is close to the industry average of 0.30. Debt management isn’t a concern.
| Debt-To-Equity | Cash | Long-Term Debt | |
| ORCL | 0.45 | 33.41B | 19.75B |
| IBM | 1.74 | 12.06B | 33.40B |
| MSFT | 0.19 | 73.79B | 14.76B |
E = Earnings Have Been Steady
Earnings and revenue have consistently improved on an annual basis. Notice that Oracle turned a profit in 2008 and 2009. That was no easy feat.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 22,430 | 23,252 | 26,820 | 35,622 | 37,121 |
| Diluted EPS ($) | 1.06 | 1.09 | 1.21 | 1.67 | 1.96 |
Looking at the last quarter on a year-over-year basis, revenue declined and earnings improved. The last quarter wasn’t impressive on a sequential basis. That said, Oracle’s revenue and earnings both tend to fluctuate in a somewhat predictable range. This isn’t a growth play; it’s a slow and steady play. As long as the profits continue to roll in, all is well.
| Quarter | Feb. 29, 2012 | May. 31, 2012 | Aug. 31, 2012 | Nov. 30, 2012 | Feb. 28, 2013 |
| Revenue ($) in millions | 9,039 | 10,916 | 8,181 | 9,094 | 8,958 |
| Diluted EPS ($) | 0.49 | 0.69 | 0.41 | 0.53 | 0.52 |
Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Conclusion
Oracle has steadily increased revenue and earnings on an annual basis. The stock is trading at 16 times earnings, whereas the industry average is 26 times earnings. The stock is more resilient than most throughout the broader market, margins are high, there is a 0.70 yield, operating cash flow is strong at $13.72 billion, 80 percent of employees approve of CEO Larry Ellison, and analysts love the stock: 27 Buy, 15 Hold, 1 Sell.
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