Bank of America Merrill Lynch Has Buy On Oracle

Bank of America Merrill Lynch has a Buy rating and a $32 price target on shares of Oracle ORCL. In the note, BAML writes, "If you take the gross profits of the maintenance revenue streams across software and hardware, it totals $14bn in trailing 12 month terms. On top of that you deduct approximately $4bn in R&D. That leaves you with $10bn on a recurring cash business hypothetically stripped of all revenue generating expenses. Subtract another $0.7bn for debt service. That is $9.3bn in cash flow. At 7.4% WACC - 5.5% debt cost and 8% equity cost (risk free rate being 0%) and 0% terminal growth (again, a very austere scenario) you get PV of enterprise of $125 bn. Adding net cash of $12bn gets you to a market cap of $137bn or $27 per share." Shares of ORCL lost $2.28 yesterday to close at $25.19.