Running The Numbers – IBM ($IBM) trading well below intrinsic value
At Valuecruncher we have looked at $IBM several times. Our valuations have been in the US$128 – US$141 range. $IBM is currently trading at US$88.86 – when we looked previously $IBM was trading at US$126.52 and US$119.42. We thought that it was time to revisit our valuation.
Valuecruncher produces a valuation of US$130.55 for $IBM. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 46.9% above the current share price of US$88.86.
- Revenue: Reuters aggregates 17 analysts covering $IBM and these analysts have mean estimates of 2008 and 2009 revenues of US$106.7 billion and US$111.7 billion respectively. For our analysis we have used US$105.0 billion in 2008, US$106.5 billion in 2009 and US$110.0 billion in 2010.
- Profitability: We have used an EBITDA margin of 20% flat to 2010. Reuters has $IBM‘s EBITD margin at 20.26% last year.
- Capital Expenditure: We have assumed capital expenditures of US$5.0 billion in 2008 and 2009 rising to US$5.5 billion in 2010 and beyond.
- Discount Rate: 10.5%.
- Terminal Growth Rate: 3.0%.
Our analysis incorporates the cash and debt the $IBM balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?