Great Quarterly Results at IBM

by: Valuecruncher

A great quarterly result from IBM (NYSE:IBM). We decided to have a look at the latest numbers for IBM and look at some comparator analysis.

Valuecruncher Interactive Analyst Report For IBM

Valuecruncher’s interactive analyst report covers both comparator valuation analysis and a discounted cash flow (DCF) valuation for IBM.

Starting with the comparator analysis:

  • IBM is compared to Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), Hewlett-Packard (NYSE:HPQ) and Accenture (NYSE:ACN).
  • On an Enterprise Value (EV) /Revenue basis IBM is valued less than half of MSFT and ORCL but nearly double HPQ and ACN. This is due to the relative profitability of those revenues - at the EBITDA line approximately 20% for IBM versus 43-45% for MSFT and ORCL and 12-14% for HPQ and ACN.
  • On an EV/EBITDA basis - the company's profits are being valued more closely. EBITDA is a measure of profitability - Earnings Before Interest, Taxes, Depreciation and Amortization.

Note: Enterprise Value is calculated as Market Capitalization plus Net Debt [Long-term Borrowings less Cash].

Our DCF valuation produces a value of US$108.42. This is just under 2% below the current share price of US$110.60.


  • Revenue: Reuters aggregates 18 analysts covering IBM and the mean estimates of 2009 and 2010 revenues are US$95.2 billion and US$97.3 billion respectively. For our analysis we have used US$95.0 billion in 2009, US$97.0 billion in 2010 and US$99.0 billion in 2011.
  • Profitability: We have used an EBITDA margin of 22.5% in 2009 rising to 23.0% in 2010. Reuters has IBM‘s EBITD margin at 20.8% last year and an average of 17.9% over the last five-years.
  • Capital Expenditure: We have assumed capital expenditures of US$4.0 billion in 2009, US$4.5 billion in 2010 then US$5.0 billion per annum moving forward.
  • Discount Rate: 10.5%.
  • Terminal Growth Rate: 3.0%.

Our analysis incorporates the cash and debt on the IBM balance sheet – Valuecruncher calculates a net debt number.

Both the comparator and DCF valuations are interactive. You can play with the assumptions and calculate your own valuations. Based on our analysis IBM appears fairly valued.

Disclosure: No Positions.