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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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


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
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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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)

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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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