IBM Still Looks Cheap at $130

Last week IBM (IBM) announced earnings well above expectations. IBM is trading toward the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool to see how the share price shapes up.

IBM Valuation

IBM grew revenues from US$91.4 billion in 2006 to US$98.8 billion in 2007 – 8% year-on-year growth. Our assumptions of revenues for the next three years are US$109.0 billion in 2008 growing to US$121.0 billion in 2010 – a 7% compound annual growth rate. We have projected EBITDA margins to grow from 20.0% in 2008 to 21.0% in 2010. We have used a terminal growth rate of 3%. We used a terminal capital expenditure number of US$5.75 billion. We have utilized a WACC (discount rate) of 9%.

• Valuecruncher valuation model of IBM with interactive assumptions

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

Our analysis gives a valuation of US$141.42 per share which is 19.3% above the current share price of US$126.52.

Based on our analysis the current share price looks undervalued. Play with our assumptions – what does your analysis say?

Disclosure: None

Comments

[zookie:]

"Our analysis gives a valuation of US$141.42 per share which is 19.3% above the current share price of US$126.52."

Sorry guys, $141.42 is 11.8% above $126.52. If you can't get this right, why should someone trust the rest of your numbers?

2008 Jul 21 12:13 PM

[Calvin C.:]

Vector Vest puts it @ $187.75, just for comparison.

2008 Jul 22 01:16 AM

[Santosh Sankar:]

Granted that your target price is 11% above the current price, I would agree with you about IBM. I really enjoy the diversification they bring to the table not just through their product offerings, but also where they do business. They are setup really well to battle domestic corporate spending reductions.

2008 Jul 24 09:07 AM