This week, I build on my last week’s blog post. In this video blog, I fundamentally analyze IBM’s stock. I review IBM’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment.
In the recent months, IBM has made changes to its business model. As value investors, it is important to review the company’s fundamentals before deciding to invest in any company. Hope you all find this 11 minute video blog interesting. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), etc.
After taking into account the current free cash flow of $12,126 million figure, a -1% growth rate of FCF (growth for the next 10 years), 10% discount rate, 5% long term growth rate (growth from 10 year mark to perpetuity), 894 million shares outstanding, and $54,102 million of long term debt, the DCF analysis yields us an intrinsic value of $108 per share. Using the current stock price of about $125 per share, and taking into account the past 10 years of free cash flows and future projects of free cash flows, we get the expected rate of return of 10.6%.
0:36 Key Ratios Analysis
6:35 Discounted Cash Flow Analysis / Intrinsic Value
8:09 Expected Rate of Return Calculation
10K Annual Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: International Business Machines Corporation is an American multinational technology company headquartered in Armonk, New York. It was founded in 1911 in Endicott, New York as the Computing-Tabulating-Recording Company and was renamed “International Business Machines” in 1924.
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