Stock Analysis on Net

Oracle Corp. (NYSE:ORCL)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

Intrinsic Stock Value (Valuation Summary)

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

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.86%
01 FCFE0 8,140
1 FCFE1 23,963 = 8,140 × (1 + 194.39%) 21,046
2 FCFE2 59,620 = 23,963 × (1 + 148.80%) 45,988
3 FCFE3 121,148 = 59,620 × (1 + 103.20%) 82,073
4 FCFE4 190,940 = 121,148 × (1 + 57.61%) 113,608
5 FCFE5 213,881 = 190,940 × (1 + 12.01%) 111,766
5 Terminal value (TV5) 12,980,921 = 213,881 × (1 + 12.01%) ÷ (13.86%12.01%) 6,783,359
Intrinsic value of Oracle Corp. common stock 7,157,840
 
Intrinsic value of Oracle Corp. common stock (per share) $2,583.16
Current share price $178.29

Based on: 10-K (reporting date: 2024-05-31).

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
Assumptions
Rate of return on LT Treasury Composite1 RF 4.38%
Expected rate of return on market portfolio2 E(RM) 13.74%
Systematic risk of Oracle Corp. common stock βORCL 1.01
 
Required rate of return on Oracle Corp. common stock3 rORCL 13.86%

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]
= 4.38% + 1.01 [13.74%4.38%]
= 13.86%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Oracle Corp., PRAT model

Microsoft Excel
Average May 31, 2024 May 31, 2023 May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared 4,391 3,668 3,457 3,063 3,070 2,932
Net income 10,467 8,503 6,717 13,746 10,135 11,083
Revenues 52,961 49,954 42,440 40,479 39,068 39,506
Total assets 140,976 134,384 109,297 131,107 115,438 108,709
Total Oracle Corporation stockholders’ equity (deficit) 8,704 1,073 (6,220) 5,238 12,074 21,785
Financial Ratios
Retention rate1 0.58 0.57 0.49 0.78 0.70 0.74
Profit margin2 19.76% 17.02% 15.83% 33.96% 25.94% 28.05%
Asset turnover3 0.38 0.37 0.39 0.31 0.34 0.36
Financial leverage4 16.20 125.24 25.03 9.56 4.99
Averages
Retention rate 0.64
Profit margin 23.43%
Asset turnover 0.36
Financial leverage 36.20
 
FCFE growth rate (g)5 194.39%

Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).

2024 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (10,4674,391) ÷ 10,467
= 0.58

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 10,467 ÷ 52,961
= 19.76%

3 Asset turnover = Revenues ÷ Total assets
= 52,961 ÷ 140,976
= 0.38

4 Financial leverage = Total assets ÷ Total Oracle Corporation stockholders’ equity (deficit)
= 140,976 ÷ 8,704
= 16.20

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.64 × 23.43% × 0.36 × 36.20
= 194.39%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (494,036 × 13.86%8,140) ÷ (494,036 + 8,140)
= 12.01%

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


FCFE growth rate (g) forecast

Oracle Corp., H-model

Microsoft Excel
Year Value gt
1 g1 194.39%
2 g2 148.80%
3 g3 103.20%
4 g4 57.61%
5 and thereafter g5 12.01%

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)
= 194.39% + (12.01%194.39%) × (2 – 1) ÷ (5 – 1)
= 148.80%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 194.39% + (12.01%194.39%) × (3 – 1) ÷ (5 – 1)
= 103.20%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 194.39% + (12.01%194.39%) × (4 – 1) ÷ (5 – 1)
= 57.61%