Oracle: Technology Leader With Exceptional Financial Strength And An Attractive Valuation

| About: Oracle Corporation (ORCL)


Oracle (NASDAQ:ORCL) was founded in 1977 by Larry Ellison, who owns 24% of the stock and continues to serve as the chief executive officer of the company. Over the past three decades, Oracle has rapidly grown to become a global technology market leader with sales topping $37 billion. The company's software, hardware and services businesses represented 74%, 14% and 12% of total revenues, respectively, in fiscal 2013.

The company's strategy is to deliver reliable, secure and scalable products and services that are built upon industry standards and are engineered to work together or independently. Oracle's database and middleware software, applications software and hardware systems-including computer server, storage and networking products-are the building blocks of their own cloud services, their partners' cloud services and their customers' private cloud environments.

Internal growth, acquisitions and innovation have contributed to the company's long-term growth. In fiscal 2013, the company spent $4.9 billion, or 13% of revenue, on research and development to enhance their existing portfolio of products and services and to develop new products and services. Through an active acquisition program, the company has invested billions of dollars in recent years to acquire a number of companies, products, services and technologies to further drive the company's growth.


Oracle's profitable operations generate strong cash flows. With minimal capital expenditure needs, Oracle's free cash flow has significantly exceeded net income over the years, a sign of high-quality earnings. Free cash flow has increased more than fourfold over the last decade from $3 billion to a record $13.6 billion at the end of fiscal 2013.

As of 5/31/13, Oracle's strong balance sheet boasted more than $32 billion in cash and marketable securities. This substantial sum remains even after the company returned a cumulative $21.7 billion to shareholders through dividends and share repurchases over the last three years. During fiscal 2013, Oracle repurchased $11 billion of stock at an average price of $31.78 per share. Between the share buyback and dividend, Oracle returned more than 90% of free cash flow to shareholders in fiscal 2013. Given Oracle's outstanding financial strength and continued growth, management recently announced an additional $12 billion stock repurchase program and doubled the dividend to an annualized rate of $.48 per share.


Oracle's dividend currently yields 1.5%. With a relatively low dividend payout, the company has ample room to continue to steadily increase the dividend. Based on the company's current market capitalization, the company is attractively valued with a free cash flow yield of 9.2%. Long-term investors should add Oracle to their database, since it is a HI-quality technology market leader with exceptional financial strength and an attractive valuation. Buy.

Disclosure: I am long ORCL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.