Oracle Corp (ORCL): Another BI Stock To Study
May 13, 2007
Oracle Corp (ORCL) is the June 2007 Stock to Study in NAIC’s Better Investing magazine. ORCL is interesting because it has recently reinvented itself by buying some 30 companies over the past 3-4 years for nearly $24 Billion.
ORCL sells and licenses what is called enterprise software to large corporations. Its products are for database management, connecting computer networks, and also include many types of business applications such as finance, human resources, manufacturing, and procurement.
It is a large company with $14.3 B in revenues for its last complete FY (up 22%) according to S&PSDS data. Revenues in its last reported quarter were up 27%. In 2005, ORCL spent $11.1 B to buy PeopleSoft (enterprise application software); in 2006, it acquired Siebel Systems for $5.9 B (customer relationship software); and ORCL recently announced that it would pay $3.3 B to purchase Hyperion Solutions (business intelligence software). ORCL’s acquisions have boosted its Sales by more than 50%.
ORCL’s archrival is SAP. According to Business Week, one of SAP’s units sells support for software from PeopleSoft, J.D. Edwards, and Siebel Systems — all three now part of ORCL –at half of ORCL’s price. In an apparant unrelated move , ORCL sued SAP in federal court this March for corporate theft.
PEs have been trending down at ORCL and I eliminated 2001 as an outlier in my SSG. It is always difficult to estimate the future in the face of declining PEs. The company’s fourth quarter ends in a few weeks, at the end of May, and it would be a good idea to check if the downtrend has continued when that data is available.
Most analysts are estimating around 15.00% EPS growth for the next 5 years (First Call, S&PSD, Zacks, and Reuters) with Value Line high at 18.5% and Take Stock unbelievably low at .1%. For my SSGs, I most often rely on the Reuters estimate less one Standard Deviation which was 11.2% (14.61 – 3.38). Thus, $35.00 was my Forecast High Price and is in the ballpark as it is less Value Line’s estimated High Price of $25-40 on 2-23-07. My SSG resulted in a 3.1 Upside-Downside ratio. but only a 13.0% Total Return.
In contrast, Take Stock’s High Price was $19.40, some $5.60 per share below the low end of Value Line’s estimated $25-40 High Price. With ORCL selling at $19.03 per share, Take Stock’s Buy Price was an unreasonably low $9.70.
ORCL’s 5 year averages of PTPM and ROE are also trending down, but both are still well above its industry average according to both Reuters and MSN. However, the picture is different at I-Club Central which has industry data (http://www.iclub.com/investing/stock_watch_list_industry.asp) from BI’s S&PSDS. Its PTPM 5 year average is 13.4%, almost half the Reuters 25.45% average and the 24.90% MSN average, all of which are for the same industry. The S&P industry data is currently dated 2-23-07 and the three-month lag is not, I bet, the explanation for the large discrepancies.
- Armin
Recently, four long-term NAIC investors shared their SSGs for Portfolio Recovery Associates (PRAA). I thought it would be fun to add my own analysis and compare our five sets of judgments.
PRAA’s primary business is the purchase and collection of consumer bad debts (defaulted accounts receivable). It is a small company, with $188.3M in 2006 Revenue according to Value Line, but does not make the current Forbes list of the 200 Best Small Companies although it more than satisies the criteria.
EPS growth has declined from from an explosive 43% per year six years ago to 21.5% last year. Analysts are estimating EPS for the next 5 years from a low of 14.3X% (Value Line and Zacks) to a high of 18.00% per year (First Call and S&PSDS/OPS) with Reuters at 15.86%. The EPS estimates for all five SSGs are within this range.
There is, however, a large Standard Deviation among the 7 Reuters analysts of 4.67% indicating substantial variation. My preference is usually to rely on the Reuters estimate less one SD which is 11.19% (15.86 – 4.67) in order to “wring out” what is commonly thought of as analyst over-optimism. However, I thought 11.2% was too low for PRAA and decided to use 16.00% in ASF-1 and 14.30% (the lowest of the 5 estimates) in ASF-2.
The empty cells for the other four SSGs below arose, I think, because they were following a faulty template that inadvertently omitted those factors. The SSG BUY criteria are a minimum Upside-Downside Ratio of 3.0 and a compound Total Return of at least 15.00% per year for the next 5 years.
Only KenK’s SSG satisfy’s the 15.00% requirement, but his Upside-Downside is missing, as it is for the other SSGs, so we can’t tell if PRAA was a SSG BUY for any of the four others.
PRAA was not a SSG BUY with my two SSGs. If its price fell to $52.80, by almost $4.50 per share, it would be a SSG BUY with ASF-1 which is based on 16.00% EPS growth. At 14.30% EPS growth, shown in ASF-2, it would be a SSG BUY if the price fell to $49.12 or by nearly $7.00 per share from its current price.
| Portfolio Recovery Associates (PRAA) |
KenK | BobM | LarryD | DanH | ASF-1 | ASF-2 |
| Sales Growth | ? | 16.00% | 16.00% | 16.00% | 16.00% | same |
| EPS Growth | 14.80% | 16.00% | 16.00% | 16.90% | 16.00% | 14.30% |
| High PE | 20.0 | 18.5 | 18.3 | 18.0 | 18.3 | same |
| High Price | ? | ? | ? | ? | $106.50 | $98.80 |
| Low PE | 13.1 | 13.1 | 12.6 | 13.0 | 12.6 | same |
| Low Price | $36.30 | $36.30 | $34.90 | $36.30 | $34.90 | same |
| Upside-Downside | ? | ? | ? | ? | 2.4 | 2.1 |
| Total Return | 18.9% | 13.8% | 13.9% | 14.3% | 13.8% | 12.1% |
| Current Price | ? | ? | ? | ? | $57.26 | same |
| Date | ? | ? | ? | ? | 5-2-07 | same |
- Armin
