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 valuation model of $IBM with interactive assumptions

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.

Assumptions

• 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?

Disclosure: None

Valuecruncher has previously completed a valuation of $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 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?

Disclosure: None

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.

Last week 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 utilised 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?

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.