Oracle Appears Slightly Undervalued

This week, Oracle (ORCL) announced better than expected financial results but gave a conservative outlook moving forward (Call Transcript). We decided to have a look at some projected financial numbers using our online valuation tool.

ORCL Valuation

Oracle grew revenues from US$11.8 billion in 2005 to US$22.4 billion in 2008 – a 24% compound annual growth rate. Our assumptions of revenues for the next three years are US$25.75 billion in 2009, growing to US$31.5 billion in 2011 – a 12% compound annual growth rate. We have projected EBITDA margins to be flat at 40%. We have used a terminal growth rate of 4%. We calculated this terminal growth rate based on year three growth of 8.6% dropping to a 3% stable growth rate by year 10. We used a terminal capital expenditure number of US$600 million. We have used a WACC (discount rate) of 10.5%.

Valuecruncher Valuation ORCL

Our analysis incorporates the cash on the Oracle balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$24.14, which is 12.7% above the current share price of US$21.42. Based on our analysis the current valuation looks slightly undervalued.

Play with our assumptions – what does your analysis say?