After declining nearly 20% during the trailing 12-month period, the Oracle Corporation (NYSE:ORCL) managed to recover all those losses but might face some headwinds going deeper into 2019.
The Oracle Corporation has been a solid long-term performer and the company had delivered reliable and relatively steady capital gains since its initial public offering (IPO) in 1986. While the share price experienced some volatility over the past four decades, the only major drop occurred when the share price dropped more than 80% between August 2000 and May 2002 after the dot-com bubble burst.
However, that drop only erased the share price spike of nearly six-fold up to the bubble’s peak. After reaching the post-bubble deflection point in May 2002, the share price was still 27% higher than it was in May 1999 before the dot-com spike. While experiencing a slightly higher level of volatility, the share price has advanced 570% since resuming the rising trend in mid-1999.
Financial Results
On March 14, 2019, the Oracle Corporation announced its financial results for the third quarter of the company’s 2019 fiscal year, which ended on February 28, 2019. Compared to the same period last year, third quarter reported total revenues of $9.6 billion were 1% lower in the U.S. dollar and up 3% higher in constant currency.
The adjusted operating income increased 2% to $4.3 billion for a 44% operating margin. Additionally, the adjusted earnings per share (EPS) advanced 8% to $0.87 and beat the $0.84 EPS analysts’ consensus estimate. Through the first three quarters of the fiscal year, Oracle beat EPS estimates every period by a combined margin of 3% — $2.38 actual versus the estimated $2.31.
“Our NetSuite ERP Cloud applications also delivered strong results with a revenue growth rate of 30%. That said, let me call your attention to the following approved statement about Oracle’s entire applications business from industry analyst IDC,” said Oracle CEO, Mark Hurd during the quarterly conference call.
Oracle Corporation (NYSE:ORCL)
Headquartered in Redwood City, California and founded in 1977, the Oracle Corporation develops, manufactures, markets, sells and hosts information technology (IT) application, platform and infrastructure solutions worldwide. The company provides its products and services through three primary methods — Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). The company’s product offerings include software solutions for human capital and talent management, enterprise resource planning, as well as customer experience, procurement, supply chain, project, business analytics and enterprise performance management.
The company also licenses its Oracle Database for data storage, retrieval and manipulation. Furthermore, the company’s Oracle Fusion Middleware (OFM) software provides an environment to build, deploy, secure, access and integrate business applications. OFM offers a variety of development tools and business analytics software solutions for mobile computing development, the Java development language and big data solutions. The Oracle Engineered Systems provides servers, storage, industry-specific hardware and operating systems and other hardware-related software. Lastly, Oracle also offers IT consulting services, including strategy development, enterprise architecture planning, as well as software design, development, implementation, integration and customer support.
Share Price
After generating small gains in 2017 and reaching a new all-time high in mid-March 2018, the share price fell 16% just in the first week of the trailing 12-month period. After a brief recovery attempt, the share price declined again sharply in early June, for a total loss of nearly 18% for the second quarter of 2018. The share price recovered almost all those losses by the beginning of October but reversed trend once more and headed lower again until reaching its 52-week low of $42.69 on December 24, 2018.
After bottoming out in late December, the share price embarked on a more stable uptrend. The share price recovered all its losses since the beginning of the trailing 12-month period by late February and reached its new all-time high of $53.06 on March 13, 2019. During the following trading session, the share price gave back a penny and closed on March 14 at $53.05. In addition to being just marginally below the all-time high from the previous day, the March 14, closing price was 1.4% higher than it was 12 months earlier, 24% above the December low and 41% higher than it was five years ago.
Dividend Income
The upcoming $0.24 quarterly dividend distribution payout marks a 26% increase over the previous period’s $0.19 payout amount. Oracle began dividend distributions 10 years ago and has hiked its annual payout every year since 2015. During the past five consecutive hikes, Oracle doubled its total annual dividend — equivalent to an average growth rate of nearly 15% per year. Despite a couple of missed quarterly payments in 2013, Oracle enhanced its annual payout nearly five-fold since the onset of dividend distributions in 2009, which corresponds to a 17% average annual growth rate.
The new quarterly payout amount corresponds to a $0.96 annualized distribution and yields 1.8%. While this yield is below the 3% level that investors generally seek for income investing, Oracle’s current yield is nearly 30% higher than the company’s own 1.4% average yield over the past five years. Additionally, the 1.8% yield is nearly twice the 0.99% average yield of the entire Technology sector. Furthermore, Oracle’s current yield is four times higher than the 0.46% simple average yield of Oracle’s peers in the Application Software industry segment, as well as nearly 20% higher than the 1.51% simple average yield of the segment’s only dividend-paying companies.
With the dividend income providing more than half of the gain, Oracle managed a 3.3% total return over the past 12 months. However, long-term investors enjoyed a 43% total return over the past three years and a 50% total return over the past five years.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
