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Oracle Corporation (ORCL)

Oracle Corporation (ORCL). Covering Analyst: Joshua Jordan jjordan3@uoregon.edu. Oracle History. Founded in 1977 Larry Ellison, Bob Miner, and Ed Oates Incorporated in 1977 A Series of Re-Incorporations Oracle Systems merged with Oracle Corporation June 1, 1995 Many Acquisitions.

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Oracle Corporation (ORCL)

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  1. Oracle Corporation (ORCL) Covering Analyst: Joshua Jordan jjordan3@uoregon.edu

  2. Oracle History • Founded in 1977 • Larry Ellison, Bob Miner, and Ed Oates • Incorporated in 1977 • A Series of Re-Incorporations • Oracle Systems merged with Oracle Corporation • June 1, 1995 • Many Acquisitions

  3. Business Overview • Software • Hardware • Services • Americas (52%) • EMEA (31%) • Asia Pacific (17%)

  4. Software Publishing Industry • Low Concentration • High Competition • Enterprise Software Publishing Sub-segment • High Concentration

  5. Software Business • Software Licenses • Database Software • MySQL • Middleware Software • Fusion Middleware • Business Intelligence, Cloud Application Foundation, Data Integration, Java • Applications Software • Fusion Applications, Siebel, JD Edwards • Customer Relationship Management, Supply Chain Management, Financials

  6. Hardware Business • Hardware Systems Products • Engineered Systems • Exadata, Exalogic, SPARC SuperCluster • Servers • SPARC microprocessor • Storage • Sun ZFS Storage Appliance Network Attached Storage • Operating Systems • Oracle Solaris

  7. Services • Consulting • Managed Cloud Services • Education

  8. Oracle’s Strategy • Retain customers through high-margin sales channels • Innovation through research & development • Acquisitions • Brand Name Growth • Product Integration

  9. Revenue • Software • License Updates & Product Support • New Software Licenses • Hardware • System Products • System Support • Services • Consulting, Cloud, Education

  10. Risks and Potential Drawbacks • Inexperience in Hardware Systems • Legal issues • Competition • Security Threats

  11. Positives • Margin growth in nearly all revenue segments • Expansion globally • Elite-talent retention • Continued acquisition program • An expanding stock repurchase program and increasing dividend

  12. DCF Expectations • Slightly increasing COGS as a percent of revenue • Most costs increase slightly into terminal year • Personnel related • Tax rate of 24% • Accelerating/Decelerating rates as opposed to straight-line rates • Increasing capital expenditures and acquisitions

  13. DCF Valuation (50%) • Possible reasons for price differential • Market Risk Premium • Beta

  14. Comparables Screening • Industry • Business Operations • Size • Beta • Growth • Margins

  15. Comparables • Microsoft (MSFT) – 40% • Intel (INTC) – 5% • Salesforce.com (CRM) – 5% • CA Technologies (CA) – 30% • Red Hat (RHT) – 20%

  16. Forward Comparables Valuation (50%) • Discrepancies • Growth • Bottom-Line Margins

  17. Final Valuation

  18. Recommendation: Hold Tall Firs and Svigals • Strong brand name with history • Continued long-term growth • Acquisitions • High-margin sales channels • Revenue and margin growth in competitive industry • Marginal undervaluation

  19. Questions

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