International Business Machines Corp Valuation – April 2019 #IBM

Company Profile (excerpt from Reuters): International Business Machines Corporation (IBM), incorporated on June 16, 1911, is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $127,277,532,893 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -24.36% Fail
6. Moderate PEmg Ratio PEmg < 20 13.11 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.65 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.91
MG Growth Estimate -2.80%
MG Value $31.55
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $158.22
MG Value based on 0% Growth $92.75
Market Implied Growth Rate 2.30%
Current Price $143.03
% of Intrinsic Value 453.39%

IBM Common Stock does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.42 in 2015 to an estimated $10.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into IBM Common Stock revealed the company was trading above its Graham Number of $75.75. The company pays a dividend of $6.21 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.11, which was below the industry average of 46.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-63.31.

IBM Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$63.31
Graham Number $75.75
PEmg 13.11
Current Ratio 1.29
PB Ratio 7.65
Current Dividend $6.21
Dividend Yield 4.34%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $49,146,000,000
Total Current Liabilities $38,227,000,000
Long-Term Debt $35,605,000,000
Total Assets $123,382,000,000
Intangible Assets $39,353,000,000
Total Liabilities $106,453,000,000
Shares Outstanding (Diluted Average) 905,242,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.80
Dec2018 $9.52
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.91
Dec2018 $9.87
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – November 2018 $IBM
International Business Machines Corp Valuation – February 2018 $IBM
International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14

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Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

International Business Machines Corp Valuation – November 2018 $IBM

Company Profile (excerpt from Reuters): International Business Machines Corporation (IBM), incorporated on June 16, 1911, is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $110,482,042,902 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -11.68% Fail
6. Moderate PEmg Ratio PEmg < 20 11.36 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.59 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.15 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.71
MG Growth Estimate -2.96%
MG Value $27.70
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $155.24
MG Value based on 0% Growth $91.00
Market Implied Growth Rate 1.43%
Current Price $121.57
% of Intrinsic Value 438.89%

IBM Common Stock does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.33 in 2014 to an estimated $10.71 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into IBM Common Stock revealed the company was trading above its Graham Number of $71.86. The company pays a dividend of $5.9 per share, for a yield of 4.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.36, which was below the industry average of 49.32, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-58.8.

IBM Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$58.80
Graham Number $71.86
PEmg 11.36
Current Ratio 1.31
PB Ratio 5.59
Current Dividend $5.90
Dividend Yield 4.85%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $48,257,000,000
Total Current Liabilities $36,822,000,000
Long-Term Debt $35,989,000,000
Total Assets $121,990,000,000
Intangible Assets $39,661,000,000
Total Liabilities $102,072,000,000
Shares Outstanding (Diluted Average) 915,213,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.03
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12
Dec1998 $3.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.71
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40
Dec2002 $3.33

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – February 2018 $IBM
International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM

Other ModernGraham posts about related companies

DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC
Acxiom Corp Valuation – July 2018 $ACXM
Infosys Ltd Valuation – June 2018 $INFY
Verisign Inc Valuation – May 2018 $VRSN
Motorola Solutions Inc Valuation – May 2018 $MSI
Leidos Holdings Inc Valuation – April 2018 $LDOS
Gartner Inc Valuation – March 2018 $IT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

International Business Machines Corp Valuation – February 2018 $IBM

Company Profile (obtained from Marketwatch): International Business Machines Corp. is an information technology company, which provides integrated solutions that leverage information technology and knowledge of business processes. It operates through the following segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems, and Global Financing. The Cognitive Solutions segment comprises a portfolio of capabilities that help IBM’s clients to identify actionable insights and inform decision making for competitive advantage. It includes Watson, a cognitive computing platform that has the ability to interact in natural language, process amounts of big data, and learn from interactions with people and computers. This segment consists of Solutions Software, which provides the basis for many of the company’s strategic areas including analytics, security and social; and Transaction Processing Software, which includes software that primarily runs mission-critical systems in industries such as banking, airlines and retail. The Global Business Services segment provides clients with consulting, application management and global process services. The Technology Services & Cloud Platforms segment provides IT infrastructure services creating business value for clients through integrated services that incorporate intellectual property within its global delivery model. The Systems segment provides clients with infrastructure technologies to help meet the requirements of hybrid cloud and cognitive workload from deploying analytics, to moving to digital service delivery with the cloud, and securing mobile transaction processing. The Global Financing segment facilitates IBM clients acquisition of information technology systems, software and services by providing financing solutions in the areas where the company functions. The company was founded by Charles Ranlett Flint and Thomas J. Watson Sr. on June 16, 1911 and is headquartered in Armonk, NY.

IBM Chart

IBM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $143,979,103,945 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.33 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -7.43% Fail
6. Moderate PEmg Ratio PEmg < 20 13.89 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.21 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.33 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $11.20
MG Growth Estimate -2.41%
MG Value $41.31
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $162.34
MG Value based on 0% Growth $95.17
Market Implied Growth Rate 2.70%
Current Price $155.52
% of Intrinsic Value 376.47%

International Business Machines Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.33 in 2014 to an estimated $11.2 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.7% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into International Business Machines Corp. revealed the company was trading above its Graham Number of $75.98. The company pays a dividend of $5.9 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.89, which was below the industry average of 34.38, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-62.47.

International Business Machines Corp. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$62.47
Graham Number $75.98
PEmg 13.89
Current Ratio 1.33
PB Ratio 8.21
Current Dividend $5.90
Dividend Yield 3.79%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $49,735,000,000
Total Current Liabilities $37,363,000,000
Long-Term Debt $39,837,000,000
Total Assets $125,356,000,000
Intangible Assets $40,531,000,000
Total Liabilities $107,762,000,000
Shares Outstanding (Diluted Average) 928,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.50
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12
Dec1998 $3.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.20
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40
Dec2002 $3.33

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM
5 Outstanding Dow Components – March 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

International Business Machines Corp Valuation – March 2017 $IBM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how International Business Machines Corp (IBM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): International Business Machines Corporation (IBM) is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing. The Cognitive Solutions segment delivers a spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, a cognitive computing platform that has the ability to interact in natural language, process big data, and learn from interactions with people and computers. The GBS segment provides clients with consulting, application management services and global process services. The Technology Services & Cloud Platforms segment provides information technology infrastructure services. The Systems segment provides clients with infrastructure technologies. The Global Financing segment includes client financing, commercial financing, and remanufacturing and remarketing.

IBM Chart

IBM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $167,049,901,878 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.21 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 28.93% Fail
6. Moderate PEmg Ratio PEmg < 20 13.53 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.27 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.21 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.55 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $13.04
MG Growth Estimate -0.65%
MG Value $94.03
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $189.10
MG Value based on 0% Growth $110.85
Market Implied Growth Rate 2.52%
Current Price $176.46
% of Intrinsic Value 187.67%

International Business Machines Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.63 in 2013 to an estimated $13.04 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.52% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into International Business Machines Corp. revealed the company was trading above its Graham Number of $76.12. The company pays a dividend of $5.5 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.53, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-57.72.

International Business Machines Corp. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$57.72
Graham Number $76.12
PEmg 13.53
Current Ratio 1.21
PB Ratio 9.27
Current Dividend $5.50
Dividend Yield 3.12%
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $43,888,000,000
Total Current Liabilities $36,275,000,000
Long-Term Debt $34,655,000,000
Total Assets $117,470,000,000
Intangible Assets $40,888,000,000
Total Liabilities $99,224,000,000
Shares Outstanding (Diluted Average) 958,714,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.42
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12
Dec1998 $3.29
Dec1997 $3.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.04
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40
Dec2002 $3.33
Dec2001 $3.88

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM
5 Outstanding Dow Components – March 2014
ModernGraham Valuation: International Business Machines (IBM)

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Qualcomm Inc Valuation – February 2017 $QCOM
Verisign Inc Valuation – February 2017 $VRSN
Jack Henry & Associates Inc Valuation – Initial Coverage $JKHY
Super Micro Computer Inc Valuation – Initial Coverage $SMCI
Teradata Corp Valuation – January 2017 $TDC
Akamai Technologies Inc Valuation – January 2017 $AKAM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

International Business Machines Corp Valuation – November 2015 Update $IBM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how International Business Machines Corp (IBM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): International Business Machines Corporation is a technology company. The Company operates in five business segments: Global Technology Services (GTS), which includes Strategic Outsourcing, Integrated Technology Services, Cloud and Technology Support Services, and also provides information technology (IT) infrastructure and business process services; Global Business Services (GBS), which offers its services across Consulting and Systems Integration, Global Process Services and Application Management Services; Software, which consists of middleware and operating systems software; Systems and Technology (STG), which provides infrastructure technologies, and Global Financing, which provides financing solutions for products or services that are critical to the end users’ business operations. Its IBM Watson Health Cloud platform collects clinical, research and social data from a range of health sources and creates a cloud-based data sharing hub.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $130,266,387,744 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 82.01% Pass
6. Moderate PEmg Ratio PEmg < 20 9.98 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.89 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.83 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

IBM value Chart November 2015

EPSmg $13.46
MG Growth Estimate 3.20%
MG Value $200.54
Opinion Undervalued
MG Value based on 3% Growth $195.14
MG Value based on 0% Growth $114.39
Market Implied Growth Rate 0.74%
Current Price $134.28
% of Intrinsic Value 66.96%

International Business Machines Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $11.09 in 2011 to an estimated $13.46 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.74% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on International Business Machines Corp (IBM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

IBM Charts November 2015

Net Current Asset Value (NCAV) -$54.39
Graham Number $64.27
PEmg 9.98
Current Ratio 1.25
PB Ratio 9.89
Dividend Yield 3.57%
Number of Consecutive Years of Dividend Growth 20

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $42,112,000,000
Total Current Liabilities $33,732,000,000
Long-Term Debt $32,122,000,000
Total Assets $108,649,000,000
Intangible Assets $33,051,000,000
Total Liabilities $95,355,000,000
Shares Outstanding (Diluted Average) 979,000,000

Earnings Per Share History

Next Fiscal Year Estimate $13.53
Dec14 $11.90
Dec13 $14.94
Dec12 $14.37
Dec11 $13.06
Dec10 $11.52
Dec09 $10.01
Dec08 $8.89
Dec07 $7.18
Dec06 $6.11
Dec05 $4.87
Dec04 $4.38
Dec03 $4.32
Dec02 $1.39
Dec01 $3.69
Dec00 $4.44
Dec99 $4.12
Dec98 $3.29
Dec97 $3.01
Dec96 $2.51
Dec95 $1.81

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $13.46
Dec14 $13.33
Dec13 $13.63
Dec12 $12.50
Dec11 $11.09
Dec10 $9.65
Dec09 $8.28
Dec08 $7.04
Dec07 $5.87
Dec06 $4.88
Dec05 $4.09
Dec04 $3.68
Dec03 $3.42
Dec02 $3.10
Dec01 $3.88
Dec00 $3.80
Dec99 $3.31

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 11/15/14
International Business Machines Annual Valuation – 2014 $IBM
5 Outstanding Dow Components – March 2014
ModernGraham Valuation: International Business Machines (IBM)

Other ModernGraham posts about related companies

Motorola Solutions Inc. Valuation – November 2015 Update $MSI
Qualcomm Inc. Valuation – October 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
Infosys Limited Analysis – October 2015 Update $INFY
Teradata Corporation Analysis – September 2015 Update $TDC
Akamai Technologies Inc. Analysis – August 2015 Update $AKAM
Total System Services Inc. Analysis – August 2015 Update $TSS
Acxiom Corporation Analysis – Initial Coverage $ACXM
ACI Worldwide Inc. Analysis – Initial Coverage $ACIW
Motorola Solutions Inc. Analysis – July 2015 Update $MSI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

International Business Machines Annual Valuation – 2014 $IBM

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After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the high PB ratio, while the Enterprising Investor has concerns with the high level of debt relative to the net current assets. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results, along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $9.66 in 2010 to an estimated $14.74 for 2014. This level of demonstrated growth is very strong, and significantly higher than the market’s implied estimate of only 1.3%. Based on the demonstrated growth, and lessened by a margin of safety, the ModernGraham valuation model estimates a more conservative growth over the next 7-10 years to be around 7.9%. The company would have to see a significant slowdown in growth in order to be worth the current price. As a result, International Business Machines appears to be significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of International Business Machines to gain a better perspective!

Read the full valuation on Seeking Alpha!

IBM Chart

IBM data by YCharts

Disclaimer:  The author did not hold a position in International Business Machines (IBM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

ModernGraham Valuation: International Business Machines (IBM)

money

Company Profile (obtained from Google Finance): International Business Machines Corporation (IBM) is an information technology (IT) company. IBM operates in five segments: Global Technology Services (GTS), Global Business Services (GBS), Software, Systems and Technology and Global Financing. GTS primarily provides IT infrastructure services and business process services. GBS provides professional services and application management services. Software consists primarily of middleware and operating systems software. Systems and Technology provides clients with business solutions requiring advanced computing power and storage capabilities. In October 2013, International Business Machines Corporation acquired Xtify Inc. In October 2013, the Company announced that it has completed the acquisition of The Now Factory, a privately held provider of analytics software that helps communications service providers (CSPs) deliver better customer experiences and drive new revenue opportunities.

 

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (explanation of the ModernGraham valuation model):

MG Value $382
MG Opinion Undervalued
Value Based on 3% Growth $198
Value Based on 0% Growth $116
Market Implied Growth Rate 2.34%
Net Current Asset Value (NCAV) -$46.45
PEmg 13.18
Current Ratio 1.21
PB Ratio 9.83

Key Data:

Balance Sheet – 9/30/2013 (an Introduction to the Balance Sheet)

Current Assets $47,533,000,000
Current Liabilities $39,222,000,000
Total Debt $28,478,000,000
Total Assets $117,845,000,000
Intangible Assets $34,884,000,000
Total Liabilities $97,968,000,000
Outstanding Shares 1,085,850,000

 

Earnings Per Share – Diluted

2013 (estimate) $15.04
2012 $14.37
2011 $13.06
2010 $11.52
2009 $10.01
2008 $8.93
2007 $7.18
2006 $6.06
2005 $4.91
2004 $4.94
2003 $4.34
2002 $3.07

Earnings Per Share – Modern Graham

2013 (estimate) $13.66
2012 $12.51
2011 $11.10
2010 $9.66
2009 $8.29
2008 $7.09

Conclusion:

International Business Machines has exhibited outstanding growth in its earnings over the last 10 years, which is shown in the rise in EPSmg (normalized earnings) from $7.09 in 2008 to an estimated $13.66 in 2013.  This sort of growth leads to a very high intrinsic value using ModernGraham’s valuation model derived from an updated version of Benjamin Graham’s formula in The Intelligent Investor.  However, investors seeking to follow Graham’s stringent requirements for Defensive Investors or Enterprising Investors should stay away from IBM at this time.  The company simply holds too much debt to qualify as a quality investment and holds enough risk to be considered speculative at this time.  If the current ratio improves to over 1.5, then this company would become significantly more interesting to Enterprising Investors.

What do you think?  Is International Business Machines undervalued or does Mr. Market have it right?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in International Business Machines at the time of publication and had no intention of purchasing a position in the next 72 hours.

Photo Credit:  Andrew Magill

DXC Technology Co Valuation – April 2019 #DXC

Company Profile (excerpt from Reuters): DXC Technology Company provides digital information technology (IT) services and solutions. The Company provides a range of services, including analytics, applications, business process, cloud and workload, consulting, enterprise and cloud applications, security, and workplace and mobility. The Company also offers e-commerce, finance and administration products and services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DXC – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,558,336,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.00 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 76.32% Pass
6. Moderate PEmg Ratio PEmg < 20 18.69 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.61 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.00 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -533,800,000.00 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.50
MG Growth Estimate 6.52%
MG Value $75.41
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $50.79
MG Value based on 0% Growth $29.77
Market Implied Growth Rate 5.09%
Current Price $65.45
% of Intrinsic Value 86.79%

DXC Technology Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.44 in 2015 to an estimated $3.5 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.09% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into DXC Technology Co revealed the company was trading below its Graham Number of $76.41. The company pays a dividend of $0.72 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 18.69, which was below the industry average of 46.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-32.23.

DXC Technology Co receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$32.23
Graham Number $76.41
PEmg 18.69
Current Ratio 1.00
PB Ratio 1.61
Current Dividend $0.72
Dividend Yield 1.10%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $8,522,000,000
Total Current Liabilities $8,522,000,010
Long-Term Debt $5,338,000,000
Total Assets $28,871,000,000
Intangible Assets $14,363,000,000
Total Liabilities $17,515,000,000
Shares Outstanding (Diluted Average) 278,990,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.49
Mar2018 $6.04
Mar2017 -$0.88
Mar2016 $1.78
Mar2015 $0.01
Mar2014 $6.28
Mar2013 $4.89
Mar2012 -$3.97
Mar2011 $4.73
Mar2010 $5.28
Mar2009 $7.31
Mar2008 $3.20
Mar2007 $2.21
Mar2006 $2.81
Mar2005 $4.22
Mar2004 $2.75
Mar2003 $2.54
Mar2002 $2.01
Mar2001 $1.37
Mar2000 $2.37
Mar1999 $2.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.50
Mar2018 $2.55
Mar2017 $1.35
Mar2016 $2.24
Mar2015 $2.44
Mar2014 $3.59
Mar2013 $2.71
Mar2012 $2.18
Mar2011 $5.02
Mar2010 $4.83
Mar2009 $4.39
Mar2008 $2.96
Mar2007 $2.87
Mar2006 $3.08
Mar2005 $3.01
Mar2004 $2.34
Mar2003 $2.11

Recommended Reading:

Other ModernGraham posts about the company

DXC Technology Corp Valuation – November 2018 $DXC

Other ModernGraham posts about related companies

Verisign Inc Valuation – March 2019 #VRSN
Motorola Solutions Inc Valuation – February 2019 $MSI
Gartner Inc Valuation – January 2019 $IT
Xerox Corp Valuation – January 2019 $XRX
Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Verisign Inc Valuation – March 2019 #VRSN

Company Profile (excerpt from Reuters): VeriSign, Inc., incorporated on April 12, 1995, is a provider of domain name registry services and Internet security, enabling Internet navigation for various domain names and providing protection for Websites and enterprises around the world. The Company operates through Registry Services and Security Services segment. Registry Services ensure the security, stability and resiliency of Internet infrastructure and services, including the .com and .net domains, and operation of the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). Security Services provides infrastructure assurance services consisting of Distributed Denial of Services (DDoS) Protection Services and Managed DNS Services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of VRSN – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,248,216,007 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.39 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 81.88% Pass
6. Moderate PEmg Ratio PEmg < 20 40.77 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -15.55 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.39 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.83 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.35
MG Growth Estimate 9.85%
MG Value $122.80
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $63.12
MG Value based on 0% Growth $37.00
Market Implied Growth Rate 16.14%
Current Price $177.49
% of Intrinsic Value 144.54%

Verisign, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.63 in 2015 to an estimated $4.35 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.14% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Verisign, Inc. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 40.77, which was below the industry average of 56.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.33.

Verisign, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.33
Graham Number $0.00
PEmg 40.77
Current Ratio 1.39
PB Ratio -15.55
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,317,034,000
Total Current Liabilities $947,590,000
Long-Term Debt $1,785,047,000
Total Assets $1,914,504,000
Intangible Assets $52,527,000
Total Liabilities $3,299,978,000
Shares Outstanding (Diluted Average) 121,407,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.12
Dec2018 $4.75
Dec2017 $3.68
Dec2016 $3.42
Dec2015 $2.82
Dec2014 $2.52
Dec2013 $3.49
Dec2012 $1.95
Dec2011 $0.86
Dec2010 $4.64
Dec2009 $1.28
Dec2008 -$1.90
Dec2007 -$0.63
Dec2006 $1.53
Dec2005 $1.63
Dec2004 $0.60
Dec2003 -$1.20
Dec2002 -$20.97
Dec2001 -$65.64
Dec2000 -$19.57
Dec1999 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.35
Dec2018 $3.79
Dec2017 $3.27
Dec2016 $2.99
Dec2015 $2.63
Dec2014 $2.58
Dec2013 $2.56
Dec2012 $1.85
Dec2011 $1.48
Dec2010 $1.53
Dec2009 $0.11
Dec2008 -$0.24
Dec2007 $0.52
Dec2006 -$0.49
Dec2005 -$6.71
Dec2004 -$14.37
Dec2003 -$21.73

Recommended Reading:

Other ModernGraham posts about the company

Verisign Inc Valuation – May 2018 $VRSN
Verisign Inc Valuation – February 2017 $VRSN
Verisign Inc Valuation – August 2016 $VRSN
Verisign Inc. Analysis – 2015 Update $VRSN
20 Companies in the Research Spotlight This Week – June 7, 2014

Other ModernGraham posts about related companies

Motorola Solutions Inc Valuation – February 2019 $MSI
Gartner Inc Valuation – January 2019 $IT
Xerox Corp Valuation – January 2019 $XRX
Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC
Acxiom Corp Valuation – July 2018 $ACXM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Motorola Solutions Inc Valuation – February 2019 $MSI

Company Profile (excerpt from Reuters): Motorola Solutions, Inc., incorporated on March 9, 1973, is a provider of communication infrastructure, devices, accessories, software and services. The Company operates through two segments: Products and Services. It serves global customer base spanning federal, state, county, province, territory, municipal and departmental independent bodies, along with its commercial and industrial customers. The Company, through VaaS International Holdings, Inc. (VaaS), provides data and image analytics for vehicle location. The Company’s image capture and analysis platform, which includes fixed and mobile license plate reader cameras driven by machine learning and artificial intelligence, provides vehicle location data to public safety and commercial customers. VaaS platform enables controllable, audited data-sharing across multiple law enforcement agencies. Vehicle location information can help accelerate time to resolution and improve outcomes for public safety agencies, particularly when combined with police records.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MSI – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $22,938,661,879 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.38 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 48.30% Pass
6. Moderate PEmg Ratio PEmg < 20 31.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -19.00 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.38 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.50 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.46
MG Growth Estimate 2.37%
MG Value $58.99
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $64.65
MG Value based on 0% Growth $37.90
Market Implied Growth Rate 11.45%
Current Price $139.98
% of Intrinsic Value 237.29%

Motorola Solutions Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.85 in 2015 to an estimated $4.46 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.45% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Motorola Solutions Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $2.13 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 31.4, which was below the industry average of 51.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-37.03.

Motorola Solutions Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$37.03
Graham Number $0.00
PEmg 31.40
Current Ratio 1.38
PB Ratio -19.00
Current Dividend $2.13
Dividend Yield 1.52%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,272,000,000
Total Current Liabilities $3,096,000,000
Long-Term Debt $5,289,000,000
Total Assets $9,409,000,000
Intangible Assets $2,744,000,000
Total Liabilities $10,685,000,000
Shares Outstanding (Diluted Average) 173,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.55
Dec2018 $5.62
Dec2017 -$0.95
Dec2016 $3.24
Dec2015 $3.02
Dec2014 $5.29
Dec2013 $4.06
Dec2012 $2.96
Dec2011 $3.41
Dec2010 $1.87
Dec2009 -$0.14
Dec2008 -$13.09
Dec2007 -$0.14
Dec2006 $10.22
Dec2005 $12.67
Dec2004 $4.38
Dec2003 $2.66
Dec2002 -$7.63
Dec2001 -$12.46
Dec2000 $4.06
Dec1999 $2.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.46
Dec2018 $3.02
Dec2017 $2.13
Dec2016 $3.68
Dec2015 $3.85
Dec2014 $4.02
Dec2013 $3.06
Dec2012 $1.38
Dec2011 -$0.15
Dec2010 -$1.37
Dec2009 -$1.36
Dec2008 -$0.38
Dec2007 $5.97
Dec2006 $7.51
Dec2005 $4.08
Dec2004 -$0.75
Dec2003 -$2.91

Recommended Reading:

Other ModernGraham posts about the company

Motorola Solutions Inc Valuation – May 2018 $MSI
5 Undervalued Companies for Value Investors with a Low Beta – July 2017
5 Undervalued Companies for Value Investors with a Low Beta – January 2017
8 Best Stocks for Value Investors This Week – 12/27/16
Motorola Solutions Inc Valuation – December 2016 $MSI

Other ModernGraham posts about related companies

Gartner Inc Valuation – January 2019 $IT
Xerox Corp Valuation – January 2019 $XRX
Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC
Acxiom Corp Valuation – July 2018 $ACXM
Infosys Ltd Valuation – June 2018 $INFY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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