Oracle Corp. (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 Corp. (MSFT), SAP AG ADS (SAP), EMC Corp. (EMC), VMware Inc. (VMW), Intuit Inc. (INTU), Adobe Systems Inc. (ADBE), Citrix Systems Inc. (CTXS), Symantec Corp. (SYMC) and CA Inc. (CA). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-08-31||2012-05-31||2012-02-29||2011-11-30||2011-08-31|
|Revenue Growth %||(25.1)||20.8||2.8||5.0||(22.3)|
|Net Income Growth %||(41.1)||38.2||14.0||19.1||(42.7)|
|Net Margin %||24.9||31.6||27.6||24.9||22.0|
|ROE % (Annualized)||18.6||31.9||23.5||21.1||18.2|
|ROA % (Annualized)||10.5||18.1||13.6||11.9||9.9|
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.
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The company attempts to achieve high profit margins (currently 27.6% vs. peer median of 18.3%) through differentiated 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.