Oracle Corporation - Revision history

>Johnny at 19:35, 23 August 2023

2023-08-23T19:35:08Z

← Older revision		Revision as of 20:35, 23 August 2023
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	== Comparable Company Analysis ==		== Comparable Company Analysis ==
	Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.		Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.
	[[File:Screenshot 2023-08-23 3.jpg\|thumb\|994x994px\|Comparables table]]		[[File:Screenshot 2023-08-23 3.jpg\|thumb\|994x994px\|Comparables table\|left]]

	To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.		To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.

>Johnny at 18:57, 23 August 2023

2023-08-23T18:57:56Z

← Older revision		Revision as of 19:57, 23 August 2023
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	== Comparable Company Analysis ==		== Comparable Company Analysis ==
	Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.		Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.
	[[File:Screenshot 2023-08-23 3.jpg\|thumb\|~~989x989px~~\|Comparables table]]		[[File:Screenshot 2023-08-23 3.jpg\|thumb\|994x994px\|Comparables table]]

	To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.		To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.
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	The company's debt level is really high compared to its competitors, which can be seen by its debt to equity and debt to capital ratios. This is a result of its share repurchase program as well as the aggressive acquisition strategy which involves a lot of debt. The company might have to suspend its repurchase program or reduce its capital expenditures in order to be able to reduce its debt levels. S&P has assigned a credit rating of BBB, which is low when compared to its competitors (e.g. Microsoft, Salesforce). Such a low credit rating can potentially lead to higher cost of debt moving forward<ref name=":0" />.		The company's debt level is really high compared to its competitors, which can be seen by its debt to equity and debt to capital ratios. This is a result of its share repurchase program as well as the aggressive acquisition strategy which involves a lot of debt. The company might have to suspend its repurchase program or reduce its capital expenditures in order to be able to reduce its debt levels. S&P has assigned a credit rating of BBB, which is low when compared to its competitors (e.g. Microsoft, Salesforce). Such a low credit rating can potentially lead to higher cost of debt moving forward<ref name=":0" />.




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>Johnny at 18:54, 23 August 2023

2023-08-23T18:54:11Z

← Older revision		Revision as of 19:54, 23 August 2023
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	'''Leverage levels'''		'''Leverage levels'''

	The company's debt level is really high compared to its competitors, which can be seen by its debt to equity and debt to capital ratios. This is a result of its share repurchase program as well as the aggressive acquisition strategy which involves a lot of debt. The company might have to suspend its repurchase program or reduce its capital expenditures in order to be able to reduce its debt levels. S&P has assigned a credit rating of BBB, which is low when compared to its competitors (e.g. Microsoft, Salesforce). Such a low credit rating can potentially lead to higher cost of debt moving forward.		The company's debt level is really high compared to its competitors, which can be seen by its debt to equity and debt to capital ratios. This is a result of its share repurchase program as well as the aggressive acquisition strategy which involves a lot of debt. The company might have to suspend its repurchase program or reduce its capital expenditures in order to be able to reduce its debt levels. S&P has assigned a credit rating of BBB, which is low when compared to its competitors (e.g. Microsoft, Salesforce). Such a low credit rating can potentially lead to higher cost of debt moving forward<ref name=":0" />.

>Johnny at 18:50, 23 August 2023

2023-08-23T18:50:53Z

@@ Line 947: / Line 947: @@
 == Comparable Company Analysis ==
 Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.
 To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.
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 Lastly, the P/E ratio was brought into consideration. Earnings from the past year were multiplied by the median P/E ratio of the six comparable companies. The estimated equity value stood at $412,878 million. Dividing this sum by the total outstanding shares of 2,714 million resulted in a fair share value of $152.11. Once again, the company's valuation appears to be lower  when compared to its peers. These outcomes suggest that investors might not be fully acknowledging the company's potential for earnings or growth relative to its competitors, leading to a lower valuation at present.
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>Johnny at 18:37, 23 August 2023

2023-08-23T18:37:59Z

← Older revision		Revision as of 19:37, 23 August 2023
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	{\| class="wikitable"		{\| class="wikitable"
	\|+		\|+
	!		\|
	\|'''2021A'''		\|'''2021A'''
	\|'''2022A'''		\|'''2022A'''
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	\|-		\|-
	\|'''Profitability ratios'''		\|'''Profitability ratios'''
	!		\|
	!		\|
	!		\|
	\|-		\|-
	\|Gross profit		\|Gross profit
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	\|-		\|-
	\|		\|
	!		\|
	!		\|
	!		\|
	\|-		\|-
	\|'''Liquidity ratios'''		\|'''Liquidity ratios'''
	!		\|
	!		\|
	!		\|
	\|-		\|-
	\|Current ratio		\|Current ratio
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	The second table includes another variable that can potentially alter our valuation result a lot, which is the perpetual growth rate. Here, under our base case, the company is expected to grow by 3% in perpetuity. This figure is most of the times tied up with the global GPD growth. However, it is worth noting that a perpetually growing economy is an idealized assumption and may not reflect the reality of economic cycles and fluctuations.		The second table includes another variable that can potentially alter our valuation result a lot, which is the perpetual growth rate. Here, under our base case, the company is expected to grow by 3% in perpetuity. This figure is most of the times tied up with the global GPD growth. However, it is worth noting that a perpetually growing economy is an idealized assumption and may not reflect the reality of economic cycles and fluctuations.

			== Comparable Company Analysis ==
			Our second method for valuing Oracle was comparable company analysis. Price/earnings, Enterprise Value/EBITDA, and Enterprise Value/Revenue ratios were used. The companies selected were the direct competitors, as mentioned above.

			To begin, the EV/Sales metric was employed. This involved taking the revenue from the past year and multiplying it by the median EV/Sales ratio of competing firms. As a result, the estimated enterprise value stood at $278,895 million. After accounting for net debt, it became evident that the equity value equated to $193,752 million or $71.38 per share. Consequently, based on this ratio, the company appears to be overvalued compared to its peers.

			Moving on, the EV/EBITDA ratio was employed. By taking the EBITDA over the last 12 months and multiplying it by the median EV/EBITDA ratio among rivals, the implied enterprise value reached $474,443 million. Deducting net debt led us to an equity value of $389,300 million. Dividing this amount by the outstanding shares yielded an implied value of $143.43 per share. Thus, according to this multiple, the company seems to be undervalued compared to its industry counterparts.

			Lastly, the P/E ratio was brought into consideration. Earnings from the past year were multiplied by the median P/E ratio of the six comparable companies. The estimated equity value stood at $412,878 million. Dividing this sum by the total outstanding shares of 2,714 million resulted in a fair share value of $152.11. Once again, the company's valuation appears to be lower when compared to its peers. These outcomes suggest that investors might not be fully acknowledging the company's potential for earnings or growth relative to its competitors, leading to a lower valuation at present.



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>Johnny at 15:37, 23 August 2023

2023-08-23T15:37:12Z

← Older revision		Revision as of 16:37, 23 August 2023
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	== Sensitivity Analysis ==		== Sensitivity Analysis ==
			[[File:Screenshot 2023-08-23 1.jpg\|thumb\|354x354px\|Table 1]]
	Sensitivity analysis provides valuable insights into the potential outcomes and risks associated with models which are based on a wide range of assumptions. As such, it is crucial to be implemented for models, such as the DCF.		Sensitivity analysis provides valuable insights into the potential outcomes and risks associated with models which are based on a wide range of assumptions. As such, it is crucial to be implemented for models, such as the DCF.
			Two significant variables that have an important impact in our DCF valuation were revenue growth rate and WACC. As it is widely known, when the WACC increases, the valuation decreases as they are negatively related based on the NPV formula. For example, in the first table, when the WACC increases by only 0.5%, the intrinsic value per share falls by approximately $17. If we increase it by another 0.5%, the intrinsic value per share drops to $100.61. Revenue growth is an essential part of the valuation as well, since it significantly impacts the free cash flow of Oracle. Under our bearish case (revenue growth rate equals 6%), Oracle's share is worth $115.81, whereas under our bullish case (revenue growth rate equals 10%) Oracle's share is worth $148.31.
			[[File:Screenshot 2023-08-23 2.jpg\|thumb\|355x355px\|Table 2]]
			The second table includes another variable that can potentially alter our valuation result a lot, which is the perpetual growth rate. Here, under our base case, the company is expected to grow by 3% in perpetuity. This figure is most of the times tied up with the global GPD growth. However, it is worth noting that a perpetually growing economy is an idealized assumption and may not reflect the reality of economic cycles and fluctuations.

>Johnny at 15:33, 23 August 2023

2023-08-23T15:33:13Z

← Older revision		Revision as of 16:33, 23 August 2023
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	== Sensitivity Analysis ==		== Sensitivity Analysis ==
	Sensitivity analysis provides valuable insights into the potential outcomes and risks associated with models which are based on a wide range of assumptions. As such, it is crucial to be implemented for models, such as the DCF.		Sensitivity analysis provides valuable insights into the potential outcomes and risks associated with models which are based on a wide range of assumptions. As such, it is crucial to be implemented for models, such as the DCF.




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>Johnny at 13:00, 23 August 2023

2023-08-23T13:00:21Z

← Older revision		Revision as of 14:00, 23 August 2023
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	\|For years 2024, 2025, 2026 the projections of sell-side analysts were used (Capital IQ, 2023). Subjective assumption were used for years 2027, 2028. Thereafter, it is anticipated that the capital expenses will gradually decrease to their previous levels. This is because Oracle will probably be unable to sustain its capital expenditures at such elevated rates due to substantial debt repayments and limited cash reserves.		\|For years 2024, 2025, 2026 the projections of sell-side analysts were used (Capital IQ, 2023). Subjective assumption were used for years 2027, 2028. Thereafter, it is anticipated that the capital expenses will gradually decrease to their previous levels. This is because Oracle will probably be unable to sustain its capital expenditures at such elevated rates due to substantial debt repayments and limited cash reserves.
	\|}		\|}

			== Sensitivity Analysis ==
			Sensitivity analysis provides valuable insights into the potential outcomes and risks associated with models which are based on a wide range of assumptions. As such, it is crucial to be implemented for models, such as the DCF.



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>Johnny at 12:50, 23 August 2023

2023-08-23T12:50:46Z

@@ Line 902: / Line 902: @@
 == DCF Valuation ==
-Our $131.43 price target represents our DCF valuation on Oracle over the next 5 years. A discount rate of 7.46% and a perpetual growth rate of 3% were used in order to calculate discounted cash flows and terminal value<ref name=":0" />. The discount rate was calculated using the Weighted Average Cost of Capital (WACC) formula. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM). A beta of 0.85, a market risk premium of 5%<ref>Damodaran. (2023). ''Country Default Spread and Risk Premiums. [https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html]''</ref> and a risk-free rate of 4.16% were used in the CAPM calculation. This target price shows a potential upside of around 16.25% when compared to the current market price. DCF is an assumption-based model and the accuracy of those assumptions can significantly impact the valuation results. The assumptions used are included in the following table:
+Our $131.43 price target represents our DCF valuation on Oracle over the next 5 years. A discount rate of 7.46% and a perpetual growth rate of 3% were used in order to calculate discounted cash flows and terminal value<ref name=":0" />. The discount rate was calculated using the Weighted Average Cost of Capital (WACC) formula. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM). A beta of 0.85, a market risk premium of 5%<ref>Damodaran. (2023). Country Default Spread and Risk Premiums. [https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html]</ref> and a risk-free rate of 4.16% were used in the CAPM calculation. This target price shows a potential upside of around 16.25% when compared to the current market price. DCF is an assumption-based model and the accuracy of those assumptions can significantly impact the valuation results. The assumptions used are included in the following table:
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>Johnny at 12:20, 23 August 2023

2023-08-23T12:20:57Z

← Older revision		Revision as of 13:20, 23 August 2023
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	\|11%		\|11%
	\|}		\|}

			== DCF Valuation ==
			Our $131.43 price target represents our DCF valuation on Oracle over the next 5 years. A discount rate of 7.46% and a perpetual growth rate of 3% were used in order to calculate discounted cash flows and terminal value<ref name=":0" />. The discount rate was calculated using the Weighted Average Cost of Capital (WACC) formula. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM). A beta of 0.85, a market risk premium of 5%<ref>Damodaran. (2023). ''Country Default Spread and Risk Premiums. [https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html]''</ref> and a risk-free rate of 4.16% were used in the CAPM calculation. This target price shows a potential upside of around 16.25% when compared to the current market price. DCF is an assumption-based model and the accuracy of those assumptions can significantly impact the valuation results. The assumptions used are included in the following table:



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