Each year, we take a look back in order to look ahead. We do this by industry, by trend, and ultimately by stock. Here's a closer look at Oracle (Nasdaq: ORCL ) , Fool style.
|Motley Fool CAPS rating (out of 5)||****|
|Bullish pitches||401 out of 440|
|Highest-rated peers||Radiant Systems, MICROS Systems, Fortinet|
Data current as of Dec. 29.
I've owned shares of Oracle for going on seven years now. Judging by the collective wisdom of the Fools rating the stock in our CAPS database, I shouldn't plan on selling my shares anytime soon. Only seven of the last 99 to rate the stock believe it will underperform the market.
What drives the unbelievers? Inertia. Bears believe Oracle is too big and slow, and that CEO Larry Ellison will soon lose his ability to buy growth.
"[Oracle's] recent acquisition of Sun might lead to interesting synergies…, but I doubt it possesses the technical expertise and the engineering culture necessary to overcome the challenges brought by disruptive changes in disk media," Foolish investor niaow wrote earlier this month.
Looking back to look forward
Fair enough. Knowing how to access a rotating optical disk drive isn't the same as knowing how to access a solid-state drive. And yet I suspect the database king will adjust fine. We've chronicled a year's worth of savvy business moves in our 2010 Oracle coverage at Fool.com:
- Mostly savvy, anyway. In May, evidence emerged that Oracle might have tried to swallow too much when it ate Sun Microsystems. First-quarter server market reporting by Gartner showed a 38% drop in Sun's server revenues.
- Better news came next month when the company reported fiscal fourth-quarter results. Per-share earnings came in at $0.60, well above the $0.54 the Street expected. Revenue improved 39% when factoring in the impact of the Sun deal and 13% organically.
- September brought the biggest news of Oracle's year -- and perhaps its biggest coup in a decade. On Sept. 6, Ellison hired former Hewlett-Packard (NYSE: HPQ ) CEO Mark Hurd, a friend, to replace Charles Phillips as co-president. Days before, Hurd had left HP under a cloud of controversy that, as of this writing, remains the subject of an SEC investigation.
- HP wasn't pleased. Almost immediately, the company filed a lawsuit against Hurd in order to "protect its confidentiality agreements" with the former CEO. Sour grapes? Maybe, but that's Silicon Valley. Drama is part of the allure. In this case, the tussle lasted only days, ending when Hurd gave back a big portion of his egregious severance package.
- Later that month, Oracle gave investors a closer look at what it expected Hurd's team to sell: a self-contained hardware and software bundle meant to serve as a comprehensive infrastructure for cloud computing. Ellison referred to the product, called Exalogic, as a "cloud in a box."
- Around the same time, Ellison told the audience at Oracle's annual analyst meeting that his team was interested in buying a chip company. Speculators bid up the stocks of three companies thought to be on Oracle's target list: Micron Technology (NYSE: MU ) , Cirrus Logic (Nasdaq: CRUS ) , and Advanced Micro Devices (NYSE: AMD ) .
- October brought more buyout speculation. This time, The Wall Street Journal reported that Oracle was eyeing a bid for data storage specialist EMC (NYSE: EMC ) . Were a deal to get done, it would likely require Oracle to issue new stock. The database king has avoided diluting existing shareholders in prior acquisitions.
- Finally, last month a judge ordered SAP (NYSE: SAP ) to pay Oracle $1.3 billion in restitution for illegal corporate spying. The database king was seeking millions more in interest as of this writing.
Not that Oracle needs the money. Here's a closer look at the company's financial performance for the year:
Fiscal 2010-2011 Performance
|Normalized net income growth||3.8%||17.6%||24.2%||34.2%|
|Return on capital||12.5%||19.7%||11.2%||14.8%|
Source: Capital IQ, a division of Standard & Poor's.
And here's what analysts expect from Oracle over the next two years, according to data compiled by Capital IQ:
Capital IQ Estimates
|Revenue estimate||$34,999 million||$37,973 million|
|Normalized profit per share estimate||$2.08||$2.31|
Source: Capital IQ, a division of Standard & Poor's. Data current as of Dec. 28.
Foolish outlook: bullish
Oracle's allure is that it's a predictable producer and user of cash. Returns on capital have remained safely in the double digits for a decade now. More than $8 billion in free cash has flowed into the company's coffers over the past 12 months, more than enough to pay down debt, fund deals, and pay a small dividend. All signs point to Oracle improving with age.
Now it's your turn to weigh in. What do you think of Oracle's prospects at current prices? Please leave a comment in the box below to explain your thinking. You can also join me in rating Oracle in Motley Fool CAPS.
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