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Valuecruncher previously completed a valuation of IBM (NYSE:IBM). IBM was trading at US$126.52 when we completed that valuation. Our valuation was US $141.42. With IBM trading at US $119.42 we thought it was time to update this valuation.

Valuecruncher Valuation Model

Valuation model of IBM with interactive assumptions

Valuecruncher produces a valuation of US$128.25 for IBM. This is a current valuation not a target price. This valuation is 7.4% above the current share price of US$119.42.

Assumptions

Our assumptions are revenues of US$105.0 billion in 2008 growing to US$115.0 billion in 2010. This growth is a compound annual growth rate [CAGR] of 5% for 2007-10 this compares to a 4% CAGR from 2005-7. We have used a flat EBITDA margin of 20% to 2010. We used a terminal growth rate of 3.0%. We used a terminal capital expenditure number of US$5.5 billion. We have used a WACC (discount rate) of 9.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

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

Based on our analysis the current share price looks cheap. It appears an opportunity to be buying $IBM. Play with our assumptions – what does your analysis say?

Source: Running the Numbers: IBM is Cheap