Oracle Corp.

Overview Key strengths Key risks Leading position in database and application software, key vendor for large enterprises Powerful founder creates risk of aggressive acquisitions and shareholder returns Products are deeply embedded in customers? operations, making switching costs and risks high Public cloud providers growing share of enterprise IT spending faster than Oracle Investment-grade market access likely necessary to manage its large capital structure and 3.5x gross leverage target both lower downgrade risk Increasing capital spending on cloud and artificial intelligence (AI) infrastructure Fiscal 2026 (ending in May) goals create room for the company to achieve its leverage target and resume share buybacks AI could be a risk if it lowers switching costs and risks Oracle Corp. defined its target in

...The company's 3.5x gross leverage target is critical for the rating. Oracle Corp. defined its target in November 2022 following years of deploying excess cash to shareholders and executing leveraged share buybacks after the 2017 U.S. tax reform made foreign cash available. A series of downgrades ensued after the rating reached a peak of '##-' prior to the reform. We estimate Oracle's management-defined gross leverage at 3.7x (S&P Global Ratings-adjusted net leverage is 3.5x) and we believe the company will have subdued share repurchases until it reaches its target in the second half of fiscal 2024. After that, we expect the company will resume repurchases but within the limits of its discretionary cash flow, and that it is unlikely to pursue large debt-financed buy backs given high interest rates. We believe management's commitment to maintaining investment-grade ratings is credible because managing a capital structure this large in the high-yield market would be difficult. Oracle's 2026...

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