September 19, 2016

Oracle Corporation
NYSE: ORCL - Packaged Software

Grade Earnings Quick Facts

49.7 Last Earnings Release

Last Qtr. Actual vs. Est.

09/16/2016 Dividend Yield

$0.55 / $0.58 52 Wk High

1.54%

$41.77

Next Release 12/14/2016 $0.58 52 Wk Low $33.94

$38.92
09/16/2016
Year Ending 05/31/2017 $2.76 Short Interest 1% of float
Rated 'SELL' since Aug 24th, 2016, when it
Year Ending 05/31/2018 $3.00 Market Cap $160.5B
was downgraded from 'HOLD'

Overview
Company Scores Poor Fundamental Grades
MarketGrader currently has a SELL rating on Oracle
Corporation (ORCL), based on a final overall grade of
49.7 scored by the company's fundamental analysis.
Oracle Corporation scores at the 69th percentile among
all 5888 North American equities currently followed by
MarketGrader. Our present rating dates to August 24,
2016, when it was downgraded from a HOLD. Relative
to the Packaged Software sub-industry, which is
comprised of 84 companies, Oracle Corporation's grade
of 49.7 ranks 29th. The industry grade leader is
Network-1 Technologies, Inc. (NTIP) with an overall
grade of 88.1. The stock has performed poorly in the
last six months in relative terms, down 5.0% compared
with the Packaged Software sub-industry, up 34.6% and
the S&P 500 Index, up 5.07%. Please go to pages two
and three of this report for a complete breakdown of
ORCL's fundamental analysis.

Price, Rating and Sentiment History - 2 Years

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 September 19, 2016

Oracle Corporation
NYSE: ORCL - Packaged Software 49.7
Dismal Growth Indicators denote Very Difficult Operating Conditions
Growth D and an Uncertain Outlook
Oracle Corporation's sales growth continued its ongoing long term decline
Market Growth LT F
last quarter. Total revenue for the period was $10.59 billion, 1.05% below
the $10.71 billion booked by the company a year ago. Its 12-month
Market Growth ST D
trailing revenue, which also included last quarter's results, was $37.05
EPS Growth billion, 0.36% lower than the 12 months ended three years ago. As sales
F
continue to slide the company will need to cut costs in order to protect its
Growth Potential F
margins and its cash reserves. However, unless business conditions
improve soon, more drastic restructuring measures may be required. It Revenue Qtrly. 05/31/2016 $10.6B
Earnings Momentum B
reported very modest profit growth last quarter relative to the same Revenue Qtrly. Year Ago $10.7B
quarter a year ago, which at least is better than its ongoing long term Revenue 1 Yr. Chg. (1.05%)
Earnings Surprise C
profit decline and might signal the beginning of a new trend. We measure Revenue 12 Mo. Tr. Latest $37B
long term profit growth as the change in full year net income (based on four rolling quarters) from the equivalent Revenue 12 Mo. Tr. 3Y Ago $37.2B
period three years ago. Oracle Corporation's Second quarter profit jumped 2.03% to $2.81 billion from $2.76 Revenue 12 Mo. Tr. 3Y Chg. (0.36%)
billion (excluding extraordinary items) reported in the year earlier period; on the other hand, also including its first
quarter results, its 12-month trailing net income dropped 18.54% to $8.90 billion from the $10.92 billion it had
earned in the 12 months ended three years earlier. The company reported a significant margin contraction in its
latest quarter, extending an ongoing trend; even though the pace of the decline slowed down from the two
preceding periods, these results suggest problems with its business model. Its EBITDA, operating and net
margins fell an average 6.16% relative to the year earlier period.
Friday's announcement of last period's $0.55 in earnings per share came below the $0.58 per share consensus
estimate of analysts following the company. Our Earnings Impact grade, which measures how investors react to
the announcement, will be updated after the next trading session since this indicator tracks the change in the
stock price from one day before to one day after the report. However, notwithstanding investor's reaction to the
report, Oracle Corporation's latest announcement confirms a negative earnings surprise trend, as it has missed
the analysts' consensus estimate by an average of 0.92% in the last six quarters. Net Income Qtrly. 05/31/2016 $2.8B
Net Income Qtrly. Year Ago $2.8B
Net Income 1 Yr. Chg. 2.03%
Net Income 12 Mo. Tr. Latest $8.9B
Net Income 12 Mo. Tr. 3Y Ago $10.9B
Net Income 12 Mo. Tr. 3Y Chg. (18.54%)

Stock's Valuation Already Reflects Past Financial Results and Isn't

Value B Without Risk at this Point
Oracle Corporation's shares trade currently at 14.09 times its earnings
Capital Structure D
per share in the last 12 months, which represents a 22.97% discount to
our "optimum" P/E ratio of 18.29. This MarketGrader-calculated ratio is
P/E Analysis B+
based on the company's quarterly earnings--in rolling 12-month periods--
Price/Book Ratio over the last five years. Accordingly, Oracle Corporation's earnings per
F
share have grown at a 3.60% annualized clip during this time. This rate of
Price/Cash Flow Ratio A-
growth could decelerate soon given the company's recent margin
contraction, despite such good Profitability grades. This could in turn put P/E Ratio 12 Mo. Tr. 05/31/2016 18.53
Price/Sales Ratio B
pressure on the stock price. At the current price the stock is trading at
Optimum P/E Ratio 18.29
14.09 times forward estimates for the next four quarters, which means
Market Value A-
that based on future expected earnings the stock trades below where it Forward P/E Ratio 14.09
S&P 500 Forward P/E Ratio 15.20
trades based on trailing results and below the market's forward P/E of 15.20. This, combined with the company's
current fundamentals, suggests that even though at face value the stock may seem cheap, investors don't think Price to (Tangible) Book Ratio -5.52
so since they put more value on its past than its future earnings, a reflection of poor growth prospects. Price-to-Cash Flow Ratio 12.16
Price/Sales Ratio 4.34
Oracle Corporation's are trading at 3.49 times their book value, which is based on the company's stockholders'
equity. However, MarketGrader's price to book value analysis is based on a company's tangible book value,
which excludes goodwill and other intangibles from its assets. In this case, Oracle Corporations' intangible assets
of $77.17 billion exceed its $47.29 billion in stockholders' equity by $29.88 billion, which means its tangible book
value is negative. This makes the shares' price to tangible book ratio meaningless. Thus, part of the risk of
owning the company's shares lies in the possibility of a significant write-down of its intangible assets, which would
automatically make its shares much more expensive than they currently appear to be. The stock's price to cash
flow ratio of 12.16, based on the $3.20 in cash flow per share generated by Oracle Corporation. in the last four
quarters, could be interpreted as investors' unwillingness to pay too much for the company's earnings prospects
in light of its overall fundamental weakness. Its shares also trade at 4.34 times its trailing 12-month sales, a small
0.71% discount to the Packaged Software industry average price to sales ratio of 4.37. Finally, from a value
perspective, we look at how much bigger the company's market capitalization is than its latest operating profits
after subtracting taxes. According to this indicator Oracle Corporation's $160.46 billion valuation is reasonable at
14.06 times its most recent quarterly net income plus depreciation.

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 September 19, 2016

Oracle Corporation
NYSE: ORCL - Packaged Software 49.7
Profitability Grades Are Solid, Indicating the Company's Business Is
Profitability B+ Strong and Healthy
Oracle Corporation has a strong 12-month trailing profitability record
Asset Utilization A- based on solid returns on shareholder equity, operating margins that
exceed its peer group average and a remarkable net profit margin. The
Capital Utilization B- $8.90 billion net profit earned by the company in the last four quarters
Operating Margins A was equivalent to 24.02% of total sales. The average operating margin for
the Packaged Software industry was 16.33% during the same period,
Relative Margins A+ 100.33% below the company's 35.37%. While Oracle Corporation's
18.82% return on equity is solid--based on 12-month trailing earnings--it
Return on Equity B- represents a slowdown from the year-earlier period's return on equity of
20.42%. Our system looks at this ratio in an attempt to measure
Quality of Revenues B- management's efficiency in rewarding investors in the company's
common stock.
This recent downturn shouldn't raise any concerns about the company's healthy capital structure, in which long
term debt accounts for 45.89% of total capital. Its still-strong results would even justify additional leverage as total
debt is only 0.93 times total equity. Oracle Corporation's core operations, as measured by the company's
EBITDA, have generated $15.85 billion in earnings over the last twelve months, a modest 8.42% decline from the
$17.31 billion earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core
earnings since it includes money earned in its operations such as interest expense, income taxes paid and
depreciation and amortization, both of which are non-cash charges.

Company's Cash Flow Indicators Are Solid Across the Board but
Cash Flow A- Offer Some Room for Improvement
Oracle Corporation's cash flow declined significantly last quarter to $3.73
Cash Flow Growth Fbillion, 12.91% lower than the year earlier quarterly cash flow of $4.28
billion. This marks an accelerating decline from twelve month trailing cash
EBIDTA Margin A-
flow, which fell to $13.56 billion in the period ended last quarter, 5.41%
Debt/Cash Flow Ratio Alower than the $14.34 billion in the year earlier period, underscoring the
ongoing deterioration of the company's business. Even though the
Interest Cov. Capacity A+
company has $43.86 billion in total debt, its net debt is virtually zero since
it has $56.12 billion in cash on hand; and since it generated $4.85 billion Cash Flow Qtrly. 05/31/2016 $3.7B
Economic Value Bin earnings before interest, taxes, depreciation and amortization last
Cash Flow Qtrly Year Ago $4.3B
quarter, it's safe to say its liquidity is remarkable. Therefore the
Retention Rate A+
company's debt is not only very manageable with its own cash flow but Cash Flow 1 Yr. Chg. (12.91%)
Cash Flow 12 Mo. Tr. Latest $13.6B
could be increased if it wanted to pursue strategic growth opportunities. The company also has the ability to
enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future value of its Cash Flow 12 Mo. Tr. 3Y Ago $14.2B
earnings. The current amount of cash and equivalents it has on hand is 3.23% higher than a year ago when it had Cash Flow 12 Mo. Tr. 3Y Chg. (4.66%)
$54.37 billion; while in this same period its leverage also increased, with total debt as a percentage of total capital Free Cash Flow Last Qtr. $3.6B
climbing from 46.30% to 48.12% today, the company's cash on hand is still larger than its debt.
MarketGrader's Economic Value indicator looks at the company's returns on invested capital after measuring the
cost of obtaining it and of keeping investors' capital tied up in its business. In this case, Oracle Corporation had Economic Value
$87.39 billion in invested capital as of its most recently reported quarter, on which it generated a 14.99% return Total Invested Capital $91.1B
based on 12-month trailing operating income. Its total after tax cost of capital was 5.73% during the same period, Return on Inv. Capital 14.99%
most of it associated with its weighted cost of equity, which was 4.53% vs. its 1.20% weighted cost of debt. Weighted Cost of Equity 4.53%
Deducting these costs from the total return on investment translates into Oracle Corporation's economic value Weighted Cost of Debt 1.20%
added (EVA) of 9.27%. While not outstanding, this represents and acceptable true economic profit after Total Cost of Capital 5.73%
accounting for both operating and capital costs. The company increased its quarterly common dividend on Economic Value Added 9.27%
November 30, 2014 by 25.00%, to 15.00 cents a share from 12.00 cents. It has paid a dividend for at least 7
years and, based on this latest payout, the stock is currently yielding 1.54%. Oracle Corporation's recently
reduced its common dividend payout from 28.55% of total earnings after taxes for the 12-month period ended two
quarters ago to 29.09% for the equivalent period that just ended last quarter. The total amount spent on dividends
in the most recent year was $2.54 billion, also equivalent to 18.74% of the company's cash flow. While the recent
reduction seems moderate, it brings the payout ratio to a level more in line with Oracle Corporation's weak
fundamentals, helping the company conserve cash while business conditions improve.

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 September 19, 2016

Oracle Corporation
NYSE: ORCL - Packaged Software 49.7
Profile
Oracle Corp. provides enterprise software and computer hardware products and services. The Key Facts:
company is organized into three businesses: Software, Hardware Systems and Services. The 500 Oracle Parkway
Software business is comprised of two operating segments: New Software Licenses and Software Redwood City ,CA 94065
License Updates and Product Support. The New Software Licenses segment includes the licensing Phone:
www.oracle.com
of database and middleware software, as well as applications software. Its software products are
designed to operate on both single server and clustered server configurations and to support a
choice of operating systems, including Oracle Solaris, Oracle Linux, Microsoft Windows and third Biggest Company in Sub-Industry
party UNIX products. The database software is enterprise database software, which is designed to Microsoft Corporation (MSFT)
enable the secure storage, retrieval and manipulation of all forms of data, including transactional Grade 63.4
data, business information, analytics, and unstructured data in the form of XML files, office Market Cap:$446.12 billion
documents, images, video, spatial and other specialized forms of data, such as human genomic and
medical data. This software is used for a variety of purposes, including online transaction processing
applications, data warehousing and business intelligence, as a document repository or specialized Smallest Company in Sub-Industry
data store. The middleware software is an application infrastructure software product that is designed Labrador Technologies Inc
to form a reliable and scalable foundation on which customers can build, deploy, secure, access and Grade 11.0
integrate business applications and automate their business processes. Its Oracle Fusion Market Cap:$1.13 million
Middleware suites and products, which are built on the Java technology platform, can be used as a
foundation for custom, packaged and composite applications. The Fusion Middleware software is
available in various software products and suites, including the following functional areas: application
server and application grid, service-oriented architecture and business process management,
business intelligence, identity and access management, data integration, content management,
portals and user interaction and development tools. The application software consists of Oracle
Fusion Applications, which are a comprehensive suite of modular and next-generation s

MarketGrader Dilution Analysis Income Last Qtr 12 Mo.

Statement (05/2016) Trailing
Impact of Change in Shares on EPS - Q3 2016
Dilution Summary Revenue $10.6B $37.0B
*EPS Latest $0.66 Op. Income $4.1B $13.1B
*EPS Year Ago $0.62
Net Income $2.8B $8.9B
EPS Change 1 Yr. 7%
*EPS $0.66 0
C. Shares - Latest(M) 4,238
C. Shares - Yr Ago(M) 4,463 *Earnings per share are based on fully diluted net income per share
excluding extrodinary items. This number may not match the
C. Shares - 1Yr Chg. (5%) headline number reported by the company.

EPS if Yr. Ago Shares $0.63

EPS Chg. if Yr. Ago 2%
EPS Loss from Dilution $0.03
Balance Sheet Latest

Total Assets $112.2B

*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.

Total Debt $43.9B

Stockholders Eq. $47.3B

All numbers in millions except EPS

Ratios
Price/Earnings (12 mo. trailing) 18.53

Price/Tangible Book -5.52

Price/Cash Flow 12.16

Price/Sales 4.34

Debt/Cash Flow 323.39

Return on Equity 18.82%

Gross Margin (12 mo. trailing) 78.37%

Operating Margin (12 mo. trailing) 35.37%

Total Assets $112.2B '11 '12 '13 '14 '15 '16
Net Profit Margin (12 mo. trailing) 24.02%
Intangible Assets $77.2B Qtr 1 0.06 0.06 0.00 0.12 0.15 0.15
Long Term Debt $40.1B Qtr 2 0.06 0.06 0.12 0.12 0.15 0.15
Total Debt $43.9B Qtr 3 0.06 0.24 0.12 0.12 0.15
Book Value $47.3B Qtr 4 0.06 0.00 0.12 0.12 0.15
Enterprise Value ($12.3B)

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 September 19, 2016

Oracle Corporation
NYSE: ORCL - Packaged Software 49.7
Top Down Analysis
# Ticker Grade Sentiment Name Price Next EPS
1 NTIP 88.13 N Network-1 Technologies, Inc. $2.70 11/14/2016
Technology 2 UBNT 87.65 Ubiquiti Networks, Inc. $52.50 11/03/2016
P

Stocks in Sector: 806 3 SVC.CA 87.61 N Sandvine Corporation $2.93 10/06/2016

Buys: 120 (14.89%) 4 TSEM 85.05 P Tower Semiconductor Ltd $15.10 11/10/2016
Holds: 110 (13.65%)
Sells: 576 (71.46%) 5 ATHM 85.03 N Autohome, Inc. Sponsored ADR Class A $23.49 11/03/2016
6 NTES 82.44 P NetEase, Inc. Sponsored ADR $238.03 11/09/2016
No. of stocks at:
7 SILC 82.14 P Silicom Ltd. $40.27 10/24/2016
52-Wk. High: 36
52-Wk. Low: 25 8 GOOGL 81.59 P Alphabet Inc. Class A $797.97 10/20/2016
Above 50 & 200-day MA: 397 9 NII.CA 80.16 P Norsat International Inc. $8.39 11/02/2016
Below 50 & 200-day MA: 217
10 VCM.CA 79.58 N Vecima Networks Inc. $9.60 09/22/2016
235 ORCL 49.72 P Oracle Corporation $38.92 12/14/2016

# Ticker Grade Sentiment Name Price Next EPS

1 NTIP 88.13 N Network-1 Technologies, Inc. $2.70 11/14/2016
Packaged Software 2 MANH 69.92 Manhattan Associates, Inc. $58.67 10/18/2016
N

Stocks in Sub-Industry: 84 3 FICO 69.92 P Fair Isaac Corporation $129.43 11/02/2016

Buys: 14 (16.67%) 4 GIMO 68.38 P Gigamon Inc. $51.78 10/20/2016
Holds: 13 (15.48%)
Sells: 57 (67.86%) 5 PAYC 67.21 P Paycom Software, Inc. $48.56 11/01/2016
6 SABR 64.99 N Sabre Corp. $27.00 08/04/2016
No. of stocks at:
7 UEPS 64.58 N Net 1 UEPS Technologies, Inc. $9.10 08/29/2016
52-Wk. High: 7
52-Wk. Low: 4 8 QLYS 64.17 P Qualys, Inc. $36.56 10/31/2016
Above 50 & 200-day MA: 37 9 SPNS 63.82 N Sapiens International Corp. NV $13.52 08/09/2016
Below 50 & 200-day MA: 23
10 MSFT 63.40 P Microsoft Corporation $57.25 10/21/2016
29 ORCL 49.72 P Oracle Corporation $38.92 12/14/2016

1. Price Trend. B+ 2. Price Momentum. F

7.1
3. Earnings Guidance. B 4. Short Interest. A+

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