Credit: Shutterstock photoOracle CorporationORCL is facing allegations over its hiring and rewarding practices. The U.S. Department of Labor has filed a lawsuit alleging that the technology giant pays more to white male workers compared to non-white and female counterparts for the same job.
Further, the company allegedly favors Asian workers for product development and other technical roles compared to non-Asian workers.
However, Oracle is not the only well-known name facing the Labor department's ire. Banking giant J.P. Morgan JPM has also been sued for discriminating against female workers. Further, Alphabet GOOGL division Google is involved in a lawsuit after it failed to provide compensation data and documents for its Mountain View headquarters as part of a routine compliance evaluation.
In Sep 2016, the Labor department filed a lawsuit against data mining firm Palantir Technologies alleging systematic discrimination against Asian job applicants.
Notably, all these companies are federal contractors and hence are prohibited from practicing employment discrimination. Per Labor department federal contractors are "required to take affirmative action to ensure that equal employment opportunity is provided to applicants and employees in all aspects of employment."
Consequently, an adverse judgement will not only dent brand value but also risks the cancellation of all current federal contracts. Further, unless they reform their discriminatory practices they can be barred from entering into future federal contracts.
Will Oracle Be Affected?
Federal contracts contribute a very small portion of Oracle's total revenues. Per USASpending.gov data, direct sales to the federal government were $60.8 million in 2015, which was miniscule compared with its global revenues of $38.2 billion.
Oracle Corp. Price and Consensus
Oracle Corp. Price and Consensus | Oracle Corp. Quote
In Oct 2016, Oracle decided against participating through the Federal Supply Schedules (FSS) for government contracts. Reportedly, huge compliance requirements, the lawsuit threats related to False Claims Act (FCA) and the new Transactional Data Reporting (TDR) rule were cited as the primary reasons behind the decision.
Moreover, Oracle's withdrawal from FSS doesn't make it ineligible for other government contracts like enterprise software awards from Department of Defense (DoD).
Notably, in the past Oracle has faced FSS-related FCA lawsuits. The company paid nearly $100 million in 2006 to settle claims against PeopleSoft and roughly $200 million in 2011 to settle allegations that it overcharged schedule customers.
Hence, we believe that barring Oracle from future government contracts (following an adverse ruling) will not materially impact the company's overall results.
Stock Price Movement
Oracle has gained 15.5% in the last one year, underperforming the Zacks Computer Software industry's increase of 22% in the same time frame.
The underperformance of the stock can be attributed to the ongoing transition from licensing to the cloud business model that is keeping margins under pressure at the moment. Moreover, litigation matters are also keeping the share prices under check.
Currently, Oracle carries a Zacks Rank #4 (Sell). Check Point Software CHKP sporting a Zacks Rank #1 (Strong Buy) is a stock worth watching in the sector. You can see the complete list of today's Zacks #1 Rank stocks here. The company's long-term earnings growth rate is currently pegged at 10.1% better than Oracle's 9.1%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
