Oracle Corp. [NDQ:ORCL - $22.00] is a leading provider of enterprise software. They added hardware to its product portfolio via the acquisition of Sun Microsystems, completed in January. Their software business consists of software licenses, software license updates and product support. ORCL’s services business account for about 19% of revenues.
Yesterday’s big selloff has knocked the shares back from a recent high of $26.63 to about $22 despite nothing but great results on fundamentals. Here are Oracle’s outstanding per share numbers (excluding non-recurring items) as reported by Value Line:
Sales, cash flow, earnings and book value per share have all grown every single year while the P/E has come down dramatically since 2002. ORCL even began paying a dividend during 2009.
Consensus estimates for the FY ending this month run from a low of $1.55 to the high from Value Line of $1.62 /share. For FY 2011 the range is now $1.83 - $1.90 /share. Even the lowest expectations put ORCL at about 14.2x trailing and 12x forward projections.
Those are extremely low valuations for ORCL by any historical measure. When tech was ‘the thing’ in early 2000 these same shares sold for a split-adjusted $46.50 on EPS of $0.35 – an absurd multiple of 133x [NOT a misprint!].
I’m a buyer of ORCL share and a seller of LEAP puts for 2012. Here are some of today’s actual price quotes due to the increased VIX readings.
Put Premium /sh.
Net Cost “If Put”
Margin of Safety
Jan. 2012 $20 Puts
$2.95
$17.05
22.5%
Jan. 2012 $22.50 Puts
$4.15
$18.35
16.59%
Jan. 2012 $25 puts
$5.60
$19.40
11.8%
A rebound to even 15 times the lowest FY 2011 estimate of $1.83 should bring ORCL back to over $27 allowing each of the above puts to expire worthless by the Jan. 21, 2012 expiration dates. By writing these long-term options you can get ‘float’ on the premiums received until you file your tax year 2012 schedule D in April of 2013 (assuming you hold the position all the way to expiration).
Dr. Paul Price
May 21, 2010
Disclosure: Author is long ORCL shares and short ORCL options.
Yesterday’s big selloff has knocked the shares back from a recent high of $26.63 to about $22 despite nothing but great results on fundamentals. Here are Oracle’s outstanding per share numbers (excluding non-recurring items) as reported by Value Line:
| FY* | Sales | C/F | EPS | Div. | B/V | Avg. P/E | |
| 2002 | 1.78 | 0.48 | 0.39 | Nil | 1.13 | 36.8x | |
| 2003 | 1.81 | 0.50 | 0.43 | Nil | 1.21 | 24.6x | |
| 2004 | 1.96 | 0.56 | 0.50 | Nil | 1.55 | 25.1x | |
| 2005 | 2.36 | 0.73 | 0.68 | Nil | 2.11 | 17.9x | |
| 2006 | 2.82 | 0.85 | 0.80 | Nil | 2.87 | 16.3x | |
| 2007 | 3.57 | 1.09 | 1.01 | Nil | 3.31 | 17.0x | |
| 2008 | 4.39 | 1.37 | 1.30 | Nil | 4.47 | 15.8x | |
| 2009 | 4.69 | 1.53 | 1.44 | 0.05 | 5.01 | 13.1x | |
| 2010** | 5.35 | 1.70 | 1.62 | 0.20 | 6.10 | 14.8x | |
| * FYs end May 31 of the same year | ** 2010 data includes Value Line estimates for Q4 | ||||||
Consensus estimates for the FY ending this month run from a low of $1.55 to the high from Value Line of $1.62 /share. For FY 2011 the range is now $1.83 - $1.90 /share. Even the lowest expectations put ORCL at about 14.2x trailing and 12x forward projections.
Those are extremely low valuations for ORCL by any historical measure. When tech was ‘the thing’ in early 2000 these same shares sold for a split-adjusted $46.50 on EPS of $0.35 – an absurd multiple of 133x [NOT a misprint!].
I’m a buyer of ORCL share and a seller of LEAP puts for 2012. Here are some of today’s actual price quotes due to the increased VIX readings.
Put Premium /sh.
Net Cost “If Put”
Margin of Safety
Jan. 2012 $20 Puts
$2.95
$17.05
22.5%
Jan. 2012 $22.50 Puts
$4.15
$18.35
16.59%
Jan. 2012 $25 puts
$5.60
$19.40
11.8%
A rebound to even 15 times the lowest FY 2011 estimate of $1.83 should bring ORCL back to over $27 allowing each of the above puts to expire worthless by the Jan. 21, 2012 expiration dates. By writing these long-term options you can get ‘float’ on the premiums received until you file your tax year 2012 schedule D in April of 2013 (assuming you hold the position all the way to expiration).
Dr. Paul Price
May 21, 2010
Disclosure: Author is long ORCL shares and short ORCL options.
