Integrated enterprise software provider Oracle (ORCL +4.97%) rocketed to fresh all-time highs Wednesday after reporting earnings for the final quarter of its 2019 fiscal year. The company is by no means the most exciting cloud-based software and services play out there, but it is nonetheless benefiting from the massive digital transformation movement.
The outlook for the next 12 months wasn't anything exciting, but that could be exactly what investors need right now.
The last year in review
Let's get one thing straight: Oracle's growth has for years been sluggish at best. Once a leader in software technology, the company didn't exactly enter the world of cloud computing gracefully. Now many of its peers are taking the lion's share of the new digital era, from newer arrivals like Salesforce.com to old rivals like Microsoft. Even Oracle's leadership in database management is getting disrupted by upstart MongoDB.
Yet, in spite of mounting competition, Oracle had a respectable fiscal 2019. Overall revenue was flat due to currency exchange headwinds caused by a stronger U.S. dollar (up 3% when excluding the negative exchange rate), but cloud revenue grew 4% when excluding currency effects. Gross profit margins remained high, and management expects them to continue to increase next year.
|
Metric |
12 Months Ended May 31, 2018 |
12 Months Ended May 31, 2019 |
YOY Change |
|---|---|---|---|
|
Revenue |
$39.4 billion |
$39.5 billion |
0% |
|
Operating expenses |
$26.1 billion |
$26.0 billion |
0% |
|
Operating profit margin |
33.7% |
34.3% |
0.6 p.p. |
|
Adjusted earnings per share |
$3.05 |
$3.52 |
15% |
YOY = year over year. P.p. = percentage point. Data source: Oracle.
Oracle has been quick to use its lucrative profit margins to return cash to shareholders. The company is paying a yearly dividend of 1.7%, but share buybacks have been the biggest bonus. Oracle co-CEO Safra Catz pointed out on the earnings call that the total share count has been reduced by 25% over the last five years, with over half of that reduction occurring in the last year alone. That is some serious return of value to shareholders and explains the big earnings jump this last year even as revenue remains subdued.
Data source: Getty Images.
Slow-and-steady is OK -- for now
While the cloud and data-driven economy keep getting bigger, Oracle seems content to continue on its current path. While the company will make the occasional acquisition, they aren't the headline makers that have grown common as of late (think Alphabet and Salesforce's recent multibillion-dollar big-data takeovers). In a fast-growing and equally fast-changing industry, that conservative approach could spell serious trouble in the not-so-distant future.
In the meantime, though, Oracle's slow-and-steady take on software could be a welcome change of pace during periods of overall volatility. The dividend isn't much to speak of, but Oracle expects another year of low-single-digit revenue growth (excluding currency exchange, naturally) to equate to double-digit earnings growth. For the new 2020 fiscal year, Catz said to look for 12% to 14% adjusted earnings growth in the first quarter and Oracle is projecting 20% for the full-year baseline.
Note too that the stock's trailing 12-month price to free cash flow is at 16.8, and its one-year forward price to earnings is even lower at 13.9 (factoring for continued share buybacks to keep profits rising).
Oracle isn't the most exciting of tech businesses, but if minimizing volatility and capturing slow-and-steady growth is your game, this stock is worth a look.
