Larry Ellison, founder and long-time chief executive of Oracle (NYSE:ORCL), took the financial media by surprise last week by stepping down as CEO. He will be replaced by current co-presidents Mark Hurd and Safra Catz, who will serve as co-CEOs.
I had always expected Ellison to be the kind of CEO that would die in the saddle with his boots on. He has a well-deserved reputation as a control freak, and his stewardship of Oracle has made him the world’s fifth wealthiest person. He also has one of those larger-than-life personalities that could have been the inspiration for a James Bond movie villain. He owns the Hawaiian island of Lanai, for crying out loud, and owns a yacht nearly the length of a football field. And though it has never been confirmed, I fully believe that somewhere, on one of his properties scattered across the globe, he has a tank full of sharks with frickin’ lazer beams attached to their heads.
A man like that doesn’t’ quietly go into retirement, and indeed Ellison has indicated that he plans to retain the title of Chief Technology Officer in additional to serving as executive chairman. But at age 70, he is finally willing to share some of the day-to-day management.
What does any of this mean for Oracle stock?
It means more of the status quo. Hurd and Catz are very capable executives, but neither are transformational figures. And both will be operating with Ellison’s rather long shadow over them for the foreseeable future.
Oracle also faces competitors on all fronts in its database and cloud businesses, from established heavyweights like IBM (NYSE:IBM), SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT) to relative upstarts like Salesforce.com (NYSE:CRM). It’s a brutally competitive market, and with corporate spending in deep freeze for most of the past five years, growth has been hard to come by.
That said, slow revenue growth has been an issue for the S&P 500 as a whole, so Oracle’s problems are hardly unique. And Oracle stock is reasonably attractive at current prices. Oracle trades for 17 times trailing earnings and just 11 times expected forward earnings.
Oracle has also been a heavy buyer of its own stock (see chart), and like the rest of Big Tech has become a reliable dividend payer. Since initiating a quarterly dividend of 5 cents a shares in 2009, Oracle has more than doubled the payout to 12 cents.
Wall Street did not react well to Ellison's announcement—or to Oracle’s uninspiring earnings release—and Oracle’s stock price was down about 5% after the announcement (it closed Friday at $39.80). But at current prices, there is a lot of pessimism built into to the stock price. At these prices, Oracle can deliver lukewarm results for the next several quarters running and still likely match the S&P 500’s returns. And if maybe—just maybe—Oracle’s cloud initiatives finally start to gain steam, Oracle stock could enjoy a nice 20%-25% rally.
Disclosures: Long MSFT
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management.