Is Now a Good Time to Snatch Up Oracle?

Adetokunbo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

To many, Oracle (NYSE: ORCL) is a bitter rival to Salesforce.com (NYSE: CRM). For investors, Oracle has numerous growth drivers in addition to its rivalry with Salesforce.com.

Recently, Oracle introduced its third-generation release of Oracle Enterprise Manager 12c. According to the company, the solution enables fast-growing enterprises to scale their IT environment and reduce the cost of their cloud network.

The product’s exadata database machine allows for pre-created plans for resource management and supports multi-rack configurations. According to the company, this assists managers to scale from managing an Oracle exadata machine for racks of multiple machines.

The product’s new capability for Oracle Exalytics allows for a virtual and physical deployment. It also provides productivity tools for managers.

According to Oracle, the solution combines the benefits of a self-service database deployment and has a copy-on-write technology that enables instant database.

“As organizations are increasingly deploying clouds, cloud service providers are facing a number of management challenges,” said Sushil Kumar, Oracle’s vice president for Product Strategy and Business Development. “With these new enhanced features, we are enabling cloud service providers to increase the efficiency and agility of their cloud environment.”

Oracle’s initiative in the cloud sector

Oracle has initiated many strategies in the last few months to improve its margins in the cloud sector. It announced a partnership deal with Salesforce.com on software delivered via cloud computing. It is a nine-year partnership encompassing applications, platform and infrastructure. Also, Oracle announced an alliance with NetSuite to deliver cloud-based services to mid-size business customers. The arrangement will integrate an Oracle software for human resources with NetSuite’s services for resource planning.

Competition

Oracle's peers are Salesforce.com, SAP AG (NYSE: SAP), and Microsoft (NASDAQ: MSFT).

Salesforce.com  has been in a brutal competition with Oracle with regards to gaining a market share in the cloud-based sector. Recently, Salesforce.com released a file-sharing product that will rival the new Oracle solution in parts of the market. But at a forward PE of 67.07, its shares are not as discounted as Oracle (10.13) at the moment. A competitor like SAP (19.36) is less expensive than Salesforce.com as well. However, Salesforce.com is estimated to grow by 28.39% in the next five years, above the industry average of 15.88%.

SAP AG has been dumping money in cloud services to gain dominance. Apart from acquiring SuccessFactor, it has simplified its organizational structure to keep it in readiness for rivalry with Oracle. But at a forward PE of 19.36, it is more expensive than Oracle. SAP AG will grow at a slower pace than Salesforce.com in the next five years at a rate of 11.00%. At 1.10%, it offers more dividend than Salesforce.com, which offers none

As for Microsoft (NASDAQ: MSFT), the company has made a push of late into the cloud-based sector. It has secured many international contracts and announced the emergence of Xbox Smart Glass technology. At a forward PE of 11.89, its shares are not as discounted as Oracle at the moment. With a 5-year average dividend yield of 2.20%, it is more attractive than SAP AG and Oracle (0.80%).

Conclusion

From an investor’s standpoint, Oracle offers investors a 5-year average dividend yield of 0.89%, only Microsoft and SAP AG will offer a higher payout among the four rivals. At 10.62%, it will grow faster than Microsoft (8.62%) in the next five years. In addition, Oracle is the cheapest among the four companies since it has the lowest forward PE.

Wall Street currently holds an average price target of $36.00 on Oracle, which represents close to a 17% upside from current levels. Some of the bullish money managers invested in the stock are Lou Simpson, Glenn Greenberg, and Anthony Bozza., In addition, Oracle also gives investors a decent dividend yield of 1.50%. Only Microsoft (2.60%) offers a higher payout. So, I think now is the time to consider buying Oracle.

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Adetokunbo Abiola has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Microsoft and Oracle.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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