Oracle ORCL · Company #1: Apple Inc. (AAPL) Date Recommended: 10/18/2012 Date Re-evaluated:...

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Date: 13 November 2012

Analyst: Nicholas Pascoe

CIF Sector Recommendation Report (Fall 2012)

Sector: Technology Review Period: October 29 – November 9

Section (A) Sector Performance Review

Both the Sector Review spreadsheet and the chart (below) show that the Sector and S&P500

declined over the two week period. The market and economy as a whole has slowed down

recently, which explains the negative outcome. Between the individual holdings in our

portfolio, Apple’s poor performance had more of an effect on the technology sector than

Oracle due to its larger portion in the ETF.

TEC

Ticker Current Beg. Stop-loss Target % Cap # Shares Current vs. Sectorvs. S&P 500

Price Price Price Price Gain Value

S&P 500 $INX $1,379.85 $1,411.94 -2.27%

Sector ETF XLK $28.06 $28.99 -3.21% 8,720 $244,683.20 -0.94%

Current Holdings

Apple AAPL $547.06 $604.00 $525.00 $665.00 -9.43% 90 $49,235.40 -6.22% -7.15%

Oracle ORCL $30.35 $30.99 $26.65 $41.00 -2.07% 1,450 $44,007.50 1.14% 0.21%

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Sector News:

The second largest mobile carrier in China, China Unicom, plans to begin selling the

iPhone 5 this year. This will increase the sales revenue of Apple. (Reuters)

Samsung’s Galaxy S3 became the leading smartphone model in the world, replacing the

iPhone which had been there for two years. (Reuters)

Apple’s shares have dropped to a five month low and DoubleLine’s CEO says they could

drop to as low as $425 in the next year due to a lack of innovation and increasing

competition. (Reuters)

Oracle has purchased Instantis, a leader for cloud-based and on-premise PPM solutions

which they hope will allow them to be the most comprehensive provider in the industry.

(Yahoo Finance)

Apple’s stock continues to spiral downward as a result of poor sales from the iPhone and iPad

releases and has it as one of the biggest negative movers through the period. The two largest

holdings from the sector are Apple and Microsoft which hold 20% and 7% of the market,

respectively. With the holiday season fast approaching, many companies in the technology

sector are preparing to release new products, from smartphones to tablets. The market has

been trending down lately but it looks to swing back upward, hopefully regaining some of the

lost ground in terms of prices.

Section (B) Sector Holding Updates

Company #1: Apple Inc. (AAPL)

Date Recommended: 10/18/2012

Date Re-evaluated: 11/14/12

Company Update

Apple’s stock, as stated above, has consistently fallen and hit a 5 month low. Some analysts

believe it will continue to fall and may reach as low as $425 in the next year. China Unicom has

decided to start selling the iPhone 5, though, which should increase sales for Apple.

Relative Performance

Blue: AAPL Red: XLK Purple: S&P500

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The stock is quite cyclical so its fluctuations are in line with both the sector and S&P500, but as

one can see from the chart, AAPL has significantly underperformed by comparison.

Price Charts

3 Month Chart


1 Year Chart


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Valuations Analysis

Original Analysis

Ratio Analysis Company Industry Sector P/E (TTM) 15.07 12.31 19.74 P/S (TTM) 4.04 1.07 3.57 P/B (MRQ) 5.38 2.20 3.72 P/CF (TTM) 13.98 10.92 13.31

Re-evaluation Analysis

VALUATION RATIOS

Company Industry Sector

P/E Ratio (TTM) 12.29 17.53 21.68

P/E High - Last 5 Yrs. 20.09 20.96 52.67

P/E Low - Last 5 Yrs. 14.61 10.60 11.62

Beta 1.22 1.18 0.93

Price to Sales (TTM) 3.26 0.88 9.32

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Price to Book (MRQ) 4.31 2.10 3.63

Price to Tangible Book (MRQ) 4.53 2.36 4.47

Price to Cash Flow (TTM) 11.36 9.75 13.29

All of the valuation ratios for Apple decrease since the original analysis. The industry’s P/E ratio

spiked up to 17.53 from 12.31 while the other ratios only fluctuated slightly. For the sector,

most of the numbers stayed relatively the same, except for P/S which almost tripled.

Historical Surprises

Original Analysis

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HISTORICAL SURPRISES

Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD)

Estimates vs Actual Estimate Actual Difference Surprise %

SALES (in millions)

Quarter Ending Sep-12 35,802.70 35,966.00 163.30 0.46

Quarter Ending Jun-12 37,215.90 35,023.00 2,192.88 5.89

Quarter Ending Mar-12 36,808.00 39,186.00 2,377.95 6.46

Quarter Ending Dec-11 39,062.50 46,333.00 7,270.46 18.61

Quarter Ending Sep-11 29,685.50 28,270.00 1,415.55 4.77

Earnings (per share)

Quarter Ending Sep-12 8.75 8.67 0.08 0.91

Quarter Ending Jun-12 10.39 9.32 1.07 10.29

Quarter Ending Mar-12 10.04 12.30 2.26 22.55

Quarter Ending Dec-11 10.16 13.87 3.71 36.46

Quarter Ending Sep-11 7.39 7.05 0.34 4.54

The latest results have the new quarter ending results from Sep-12. Sales were positively

surprising by 0.46% and earnings per share disappointing by 0.91%.

Consensus Estimates

Original Analysis

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Re-Evaluation Analysis

CONSENSUS ESTIMATES ANALYSIS


# of Estimates Mean High Low 1 Year

Ago

SALES (in millions)

Quarter Ending Dec-12 44 54,524.90 59,553.00 51,710.00 44,104.50

Quarter Ending Mar-13 43 47,572.50 53,473.00 43,878.70 36,439.00

Year Ending Sep-12 52 156,274.00 158,582.00 152,300.00 --

Year Ending Sep-13 54 193,554.00 221,052.00 178,504.00 160,575.00

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Year Ending Sep-14 39 223,066.00 250,478.00 199,559.00 171,128.00


Quarter Ending Dec-12 44 13.38 16.00 11.53 10.79

Quarter Ending Mar-13 46 12.45 14.98 10.44 8.91

Year Ending Sep-12 56 44.29 46.29 43.48 --

Year Ending Sep-13 55 50.08 63.50 43.63 38.84

Year Ending Sep-14 41 58.66 68.69 51.62 42.50

LT Growth Rate (%) 12 20.86 35.00 15.00 18.62

The new estimates include values for Year Ending September 2014. Other than that, the new

analysis added some analysts and their projections lowered most of the averages by a little.

Estimate Revision Analysis

Original Analysis

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ESTIMATES REVISIONS SUMMARY

Last Week Last 4 Weeks

Number Of Revisions: Up Down Up Down

Revenue

Quarter Ending Dec-12 3 0 14 23

Quarter Ending Mar-13 2 1 18 17

Year Ending Sep-12 -- -- -- --

Year Ending Sep-13 2 1 20 27


Earnings

Quarter Ending Dec-12 3 1 1 37

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Quarter Ending Mar-13 0 3 6 31

Year Ending Sep-12 -- -- -- --



Overall, there were more revisions up for sales in the last week for the re-evaluation analysis

compared to the original, and more revision down for earnings.

Analysts’ Recommendations

Original Analysis

The Analyst’s Recommendations chart was not in the original report.


ANALYST RECOMMENDATIONS AND REVISIONS

1-5 Linear Scale Current 1 Month

Ago 2 Month

Ago 3 Month

Ago

(1) BUY 27 27 28 27

(2) OUTPERFORM 23 23 21 21

(3) HOLD 5 4 4 5

(4) UNDERPERFORM 1 1 1 1

(5) SELL 1 1 1 1

No Opinion 0 0 0 0

Mean Rating 1.70 1.68 1.65 1.69

Company #2: Oracle Corp.

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Date Recommended: 10/18/2012

Date Re-evaluated: 11/14/2012

Company Update

According to Yahoo Finance, Oracle has purchased Instantis, a leader for cloud-based and on-

premise PPM solutions which they hope will allow them to be the most comprehensive

provider in the industry.

Relative Performance

Blue: ORCL Purple: S&P500 Red: Technology

Oracle managed to outperform both the market and sector for the majority of the two week

period. The stock has consistently performed well by comparison and the purchase of Instantis

projects positive earnings in the future.

Price Charts

3 Month Chart

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1 Year Chart

Valuation Analysis

Original Analysis

Ratio Analysis Company Industry Sector P/E (TTM) 15.15 28.53 19.74 P/S (TTM) 3.99 3.14 3.57 P/B (MRQ) 3.41 4.35 3.72 P/CF (TTM) 11.23 15.43 13.31

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VALUATION RATIOS

Company Industry Sector

P/E Ratio (TTM) 14.88 133.99 21.59

P/E High - Last 5 Yrs. 21.63 55.32 52.86

P/E Low - Last 5 Yrs. 13.51 18.30 11.62

Beta 1.10 0.85 0.93

Price to Sales (TTM) 3.92 191.67 9.29

Price to Book (MRQ) 3.35 3.83 3.61

Price to Tangible Book (MRQ) 13.56 8.12 4.46

Price to Cash Flow (TTM) 11.02 19.07 13.20

For the company, most of the ratios have stayed about the same. The industry, however, saw

major changes in P/E, going from 28.53 to 133.99, and P/S, jumping from 3.14 to 191.67. The

sector stayed mostly the same.

Historical Surprises

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Original Analysis


HISTORICAL SURPRISES


Estimates vs Actual Estimate Actual Difference Surprise %

SALES (in millions)

Quarter Ending Aug-12 8,419.30 8,209.00 210.30 2.50

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Quarter Ending May-12 10,890.40 10,950.00 59.61 0.55

Quarter Ending Feb-12 9,023.73 9,062.00 38.27 0.42

Quarter Ending Nov-11 9,228.34 8,811.00 417.34 4.52

Quarter Ending Aug-11 8,353.85 8,398.00 44.15 0.53


Quarter Ending Aug-12 0.53 0.53 0.00 0.11

Quarter Ending May-12 0.78 0.82 0.04 4.91

Quarter Ending Feb-12 0.56 0.62 0.06 10.56

Quarter Ending Nov-11 0.57 0.54 0.03 5.25

Quarter Ending Aug-11 0.46 0.48 0.02 3.31

There were no changes between analyses.

Consensus Estimates

Original Analysis

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CONSENSUS ESTIMATES ANALYSIS


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# of Estimates Mean High Low 1 Year

Ago

SALES (in millions)

Quarter Ending Nov-12 34 9,027.07 9,316.00 8,836.00 9,930.63

Quarter Ending Feb-13 34 9,466.04 9,752.00 9,128.00 10,188.80

Year Ending May-12 38 37,209.40 38,887.00 36,971.00 --

Year Ending May-13 37 38,296.70 38,987.00 37,765.00 41,475.10

Year Ending May-14 38 40,818.70 42,262.00 38,919.00 43,951.20


Quarter Ending Nov-12 36 0.61 0.63 0.59 0.61

Quarter Ending Feb-13 36 0.66 0.69 0.62 0.64

Year Ending May-12 40 2.42 2.45 2.34 --

Year Ending May-13 39 2.65 2.74 2.53 2.64

Year Ending May-14 39 2.91 3.11 2.56 2.90

LT Growth Rate (%) 15 11.92 20.00 5.00 13.13

The differences between original and re-evaluation analyses were very minimal. The earnings

per share estimates were almost exactly the same.

Estimate Revision Analysis

Original Analysis

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ESTIMATES REVISIONS SUMMARY

Last Week Last 4 Weeks

Number Of Revisions: Up Down Up Down

Revenue

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Quarter Ending Nov-12 0 0 0 1

Quarter Ending Feb-13 0 0 0 1

Year Ending May-12 -- -- -- --

Year Ending May-13 0 0 0 1


Earnings

Quarter Ending Nov-12 0 0 0 0

Quarter Ending Feb-13 0 0 0 0

Year Ending May-12 -- -- -- --



The re-evaluation analysis has far less revisions, with none happening in the last week for either

sales or earnings.

Analyst’s Recommendations

Original Analysis

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ANALYST RECOMMENDATIONS AND REVISIONS

1-5 Linear Scale Current 1 Month

Ago 2 Month

Ago 3 Month

Ago

(1) BUY 10 11 14 13

(2) OUTPERFORM 19 19 18 18

(3) HOLD 14 15 12 12

(4) UNDERPERFORM 0 0 0 0

(5) SELL 0 0 0 0

No Opinion 0 0 0 0

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Mean Rating 2.09 2.09 1.95 1.98

The trend of the stock by looking at the charts so far has been consistent in not changing. The

re-evaluation shows a more bearish average by 0.02, so not much at all.

Section (C) Sector Recommendations

Although the market as a whole has been than satisfying, I am bullish on the technology sector

and recommend continuing to hold both of these stocks. Starting with Oracle, it has maintained

a low volatility and performed well by comparison and keeps our portfolio diversified. Apple

has been a huge disappointment since purchasing the stock but I feel that it will regain some

ground as the holiday season approaches. I would hold the stock until after the new year and

reevaluate it then, likely selling.

Section (D) Sector Holding Recommendations

Company Name

Ticker

Symbol

Date

Recommended

Date Re-evaluated

Recommendation

(Explain Why)

Sell

Adjust “Target Price”

Adjust “Stop-

loss Price”

Apple AAPL 10/18/2012 11/14/2012 No No No

Oracle ORCL 10/18/2012 11/14/2012 No No No

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References

Reuters.com

http://www.reuters.com/finance/stocks/overview?symbol=ORCL.O

http://www.reuters.com/finance/stocks/overview?symbol=AAPL.O

Finance.yahoo.com

http://finance.yahoo.com/q?s=AAPL

http://finance.yahoo.com/q?s=ORCL

http://finance.yahoo.com/q?s=XLK

http://www.reuters.com/finance/stocks/overview?symbol=ORCL.O

http://www.reuters.com/finance/stocks/overview?symbol=AAPL.O

http://finance.yahoo.com/q?s=AAPL

http://finance.yahoo.com/q?s=ORCL

http://finance.yahoo.com/q?s=XLK

Oracle ORCL · Company #1: Apple Inc. (AAPL) Date Recommended: 10/18/2012 Date Re-evaluated:...

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