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Oracle’s PE / EBITDA Multiples Trading At A Steep Discount

|Includes: CRM, MSFT, Oracle Corporation (ORCL), RHT, VMW

Oracle Corporation (NYSE:ORCL) is expected to report earnings on Thursday after the market closes. The company's shares last traded at $40.47 as of Monday, approximately 96% of its 52 week high. fair value data implies that the stock is currently 9% undervalued while Wall Street's consensus price target of $44.13 also implies 9% upside.

Oracle's efficiency ratios look attractive when compared to its publicly traded peer group:, inc. (NYSE:CRM), Red Hat, Inc. (NYSE:RHT), Microsoft Corporation (NASDAQ:MSFT) and VMware, Inc. (NYSE:VMW). The company's return on equity (ROE) of 19% is above the group average of 14%. Similarly, return on assets (ROA) and return on invested capital (NASDAQ:ROIC) are also above the group average. Microsoft is the only peer that has outperformed Oracle in all three categories.

However, Oracle's net income and EBITDA growth rates have generally underperformed relative to the same comparable company group.

These growth figures help explain why the company's price to earnings (P/E) and EBITDA multiples trade at a significant discount.

Should Oracle be trading at such a steep discount? They are facing stiff competition as they shift into cloud computing (currently 8% of revenues), but the company is still a clear leader in the database space. Overall, Oracle remains an attractive long-term investment boasting industry leading returns and a favorable balance sheet. Value investors may want to take a closer look at the stock prior to earnings. Both Wall Street and valuation models support a fair value close to $44 per share.