Stock Analysis on Net
Stock Analysis on Net

Oracle Corp. (NYSE:ORCL)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel LibreOffice Calc

Intrinsic Stock Value (Valuation Summary)

Oracle Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.04%
01 FCFE0 26,055
1 FCFE1 33,469 = 26,055 × (1 + 28.46%) 30,417
2 FCFE2 40,639 = 33,469 × (1 + 21.42%) 33,564
3 FCFE3 46,486 = 40,639 × (1 + 14.39%) 34,892
4 FCFE4 49,904 = 46,486 × (1 + 7.35%) 34,042
5 FCFE5 50,064 = 49,904 × (1 + 0.32%) 31,036
5 Terminal value (TV5) 516,923 = 50,064 × (1 + 0.32%) ÷ (10.04%0.32%) 320,454
Intrinsic value of Oracle Corp.’s common stock 484,404
 
Intrinsic value of Oracle Corp.’s common stock (per share) $176.91
Current share price $98.25

Based on: 10-K (filing date: 2021-06-21).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 2.02%
Expected rate of return on market portfolio2 E(RM) 11.66%
Systematic risk of Oracle Corp.’s common stock βORCL 0.83
 
Required rate of return on Oracle Corp.’s common stock3 rORCL 10.04%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rORCL = RF + βORCL [E(RM) – RF]
= 2.02% + 0.83 [11.66%2.02%]
= 10.04%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Oracle Corp., PRAT model

Microsoft Excel LibreOffice Calc
Average May 31, 2021 May 31, 2020 May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016
Selected Financial Data (US$ in millions)
Cash dividends declared 3,063  3,070  2,932  3,140  2,631  2,541 
Net income 13,746  10,135  11,083  3,825  9,335  8,901 
Revenues 40,479  39,068  39,506  39,831  37,728  37,047 
Total assets 131,107  115,438  108,709  137,264  134,991  112,180 
Total Oracle Corporation stockholders’ equity 5,238  12,074  21,785  45,726  53,860  47,289 
Financial Ratios
Retention rate1 0.78 0.70 0.74 0.18 0.72 0.71
Profit margin2 33.96% 25.94% 28.05% 9.60% 24.74% 24.03%
Asset turnover3 0.31 0.34 0.36 0.29 0.28 0.33
Financial leverage4 25.03 9.56 4.99 3.00 2.51 2.37
Averages
Retention rate 0.73
Profit margin 27.34%
Asset turnover 0.32
Financial leverage 4.49
 
FCFE growth rate (g)5 28.46%

Based on: 10-K (filing date: 2021-06-21), 10-K (filing date: 2020-06-22), 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22).

2021 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (13,7463,063) ÷ 13,746
= 0.78

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 13,746 ÷ 40,479
= 33.96%

3 Asset turnover = Revenues ÷ Total assets
= 40,479 ÷ 131,107
= 0.31

4 Financial leverage = Total assets ÷ Total Oracle Corporation stockholders’ equity
= 131,107 ÷ 5,238
= 25.03

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.73 × 27.34% × 0.32 × 4.49
= 28.46%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (269,026 × 10.04%26,055) ÷ (269,026 + 26,055)
= 0.32%

where:
Equity market value0 = current market value of Oracle Corp.’s common stock (US$ in millions)
FCFE0 = the last year Oracle Corp.’s free cash flow to equity (US$ in millions)
r = required rate of return on Oracle Corp.’s common stock


FCFE growth rate (g) forecast

Oracle Corp., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 28.46%
2 g2 21.42%
3 g3 14.39%
4 g4 7.35%
5 and thereafter g5 0.32%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 28.46% + (0.32%28.46%) × (2 – 1) ÷ (5 – 1)
= 21.42%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 28.46% + (0.32%28.46%) × (3 – 1) ÷ (5 – 1)
= 14.39%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 28.46% + (0.32%28.46%) × (4 – 1) ÷ (5 – 1)
= 7.35%