IBM Stock Report
2-Year Price History
Recent Price
(7/2 4:15PM)
-3.0%
$101.73
52-Week Price
$69.50 - $129.97
Market Capitalization
$134.4 Billion
Most Recent Dividend
$1.90
Ockham's Rating
We are reaffirming our rating on IBM as of this week’s report. While we firmly believe that valuing companies based on fundamentals is very useful, we are careful not to view historical valuations in a vacuum. It is foolish to believe that a stock will always revert to historical norms. So, although there is value in historical norms, they only tell part of the story. When the market or a sector breaks through strategic thresholds such as standard deviations of historical pricing multiples, we find it necessary to view history with a grain of salt as a new reality may be dawning.
This week's rating remains unchanged from a week ago, as IBM's fundamentals have remained intact or even in some cases have improved. The market has not triggered any significant volatility alerts for the last half year's returns, so we feel confident in comparing this stock to where it has stood historically. Please continue reading for a more thorough analysis of the company's fundamentals and other key data.
It is often helpful to begin our analysis with recent price changes, the price of IBM declined from $105.68 as of 06/27/2009 to a price of $101.73 as of 07/04/2009. While this decrease of 3.74% was not large enough for Ockham to upgrade the stock, it does however slightly increase the attractiveness of IBM, assuming that the fundamentals remain at current levels.
As of this report, there have been no meaningful adjustments in cash earnings expectations or guidance in the last week.
IBM Stock Evaluation
Looking at IBM since last week, there has been little movement in price on a percentage basis. Additionally, there haven't been significant revisions to earnings estimates for IBM. Given this, we are maintaining our Undervalued rating. While there may not have been any meaningful changes in either price or earnings outlook, we still want to analyze where IBM is in relationship to its historical fundamentals. Looking at the ratios and multiples described below and throughout this report is the best way to evaluate the strength of IBM's current Undervalued rating.
IBM Revenue
As a value investing shop, we are interested in seeing how IBM's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.82x and the low end of the range at 1.22x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for IBM of 1.26x is significantly below its average levels historically. In fact, with a current price of $101.73, IBM is a full 18% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for IBM.
IBM Cash Earnings
As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently IBM is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for IBM to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 12.58 and a 8.32 low over the same period.
Now that IBM’s current price is $101.73 and its Price to Cash Earnings ratio is 7.62, we are very positive on its outlook from the cash earnings perspective. In fact, IBM is now trading a full 28% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why IBM has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.
IBM Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from IBM against the historic high and low levels over an available data range. Because IBM has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In IBM’s case, the estimated annual dividend is $2.20 producing a current dividend yield of 2.16%. The highest dividend yield from IBM in recent history was 3.17% while the lowest dividend yield was 0.38%. It's hard not to notice that IBM pays a current dividend yield that is 21.69% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.
The latest TV Media Discussion
“…And then I got a little further I noticed on-line that there were other people that were doing the same thing, and I noticed there wasn't anybody really serving that market, so at the same time while I was working for IBM, they came out with this program called home page creator. They helped me build a website that actually got me out of my alexis: oh, look at that. Chris, you and I have talked a lot about it, obviously your …” …more details…
“…That gorgeous lipstick on her right now. Thank you very much for being john let me start with you. You had this really long career at IBM in addition to your father and then you went out and said I want to start a unicycle not many people wake up every how did you do it? >> I had ridden as a kid, and I rode from like age 12 to 16 and …” …more details…
“…A slew of orders come in, at&t, exxon, citi, pfizer all hitting the board now. Wells fargo, xpo energy and alcoa will kick off earnings season. Buy orders, IBM with a buy order. Certainly you're seeing some buy orders coming in here late in %-the day. Tomorrow, the all important monthly jobs report where we are expecting unemployment to move up to that or at least …” …more details…
“…Part of the year, you're going to see foreign currency translation actually be a tail wind for some of these >> is that up for jamie for you to commit money to those >> I think so. I mean, take, for example, IBM. I think if you take, for example, all of the revenue growth that they expect, plus the foreign currency translation, it's going to be a nice boost. So I think in that respect, yes. Also, mcdonald's, for example. Think about all of the places …” …more details…
“…American express up 26%, microsoft, intel and cisco. You can see IBM up 26% year to about 13 of these components are in the green and the biggest losers are g.E. And caterpillar. Some of the top stories we have been watching, general mills …” …more details…
“…We knew we were insured by because every trade confirmation we got told us we were insured. We felt like we had a rock of gibraltar in our broker. Our broker who bought us IBM stock and coca-cola and mcdonald's. Stocks, blue-chips that you could prove the value of. Brian: and here's where the story I think may continue. …” …more details…
“…Prices is missing the mark, decent company. >> nike, we talked about that >> good numbers from them. >> heading into the final day of the first half of the year, american express, IBM, microsoft top three performers. >>> i'm melissa lee, thanks for watching, see you back here 5:00 p.M. Tomorrow for more "fast money." …” …more details…
“…Today was initiated about six shops, the interesting thing about these guys, online distribution which keeps the overhead pretty low, valuations are pretty compelling here, and i've got to tell you something, with their customer base, IBM, harvard university, u.S. Postal service, very diverse, great revenue stream, I think it's a cheap stock here. Does it have a little bit more room on the downside? …” …more details…
“…So much, I want to sell it. I am going to tell you to sell it's a great, well-run company with good reserves and this is one of the things, used to say it about IBM, no one ever got hurt owning exxon. I am going to tell you to stick can I go to anthony in ohio, >> caller: hello, professor krameer and a big buckeye …” …more details…
“…>> caller: hey, jim, my stock is accenture, acn, they've had a little move lately, but longer term, they are head-to-head competitors with IBM for a lot of the consulting business that they do. And if this is a two-horse race, jim, am I on the right horse with accenture? >> actually, it's a three-horse race and I think you could be on …” …more details…
“…But the stock fell 8% with concern of contracts and billing >> the stock was up 3.5%. I think it's a takeover IBM has them squarely in the cross fires. I like rht. They said nothing that dissuaded >> the pit boss hoping the buzz around palm's new phone would help this name. >> just watching sprint trading …” …more details…
“…You save money and the losers, the big utilities and manufacturing firms, don't own stocks that are in that space, if it passes. And, the winners, companies that will make it more green and IBM and sap are developing software to show companies how much carbon they are actually putting in the money and IBM and sap and ben bernanke today, if you didn't site, not guilty, pleaded …” …more details…
“…>> this is the irony and I say inflation is a problem and gold will deflate. >> inflate. Cody: deflate. Rebecca: IBM's former ceo, has an idea with wall street and he says if you a stock or bond in the morning and said in the afternoon you will make big bucks and used to be taxed 80% on that game, and he says it will counter what he calls wall …” …more details…
“…Talked abmuch. They got an s&p downgrade and they've been under pressure. Watching nike, another name that the orders declined 12%. They did get a downgrade. They have been down all day long. Lennar, IBM. IBM is doing great. It's accounting for 10% of the dow jones/industrial average gains here. Maybe 15 points give or take. IBM is a big winner. Not only for tech stocks, and IBM itself but for the dow jones/industrials average. So far, so good. In a half hour left here. Back to you. >> liz: thank you. What is everybody watching i'll start with steve wood. >> I think that i'm looking …” …more details…
“…>> great to see you again, alexis: you reaffirmed guidance and had an investors meeting the other day and in fact be think you're doing well from your competition and taking market share from IBM and hewlett-packard. How are you doing that? >> ap also from small companies. I think the chi lends itself. Customers are trying to reduce their risk and we've done well as customers begin to …” …more details…
“…8850 is a key level again. Now we are back in and you have leaders. Apple and IBM to see where they support. …” …more details…
“…I don't know -- we'll have to he did. He came up with 10 sub industries. Mind you, there's 140 sub industries to get specific. Computer hardware bring it to a name, obviously, like an IBM or hewlett packard. Distributors, that's a little obtuse, drugstores, obvious. Health care services, i.T. …” …more details…
“…S & p, what strategy would you put in place? >> in this kind of market, I think everybody needs to consider using options in their portfolio if they are investing in the markets. Give you a couple of quick you look at stocks like IBM, ten years ago, the end of june of '99, stock was trading around 129 and today, here it is trading under 105. Pfizer was trading at about I …” …more details…
“…We also had apple up. Of course the introduction of the iphone. Research in motion a little bit lower today. Its forecast disappointing. And IBM off just about 44 cents. Also, it was interesting to watch the commodities area because while energy was stronger earl in the day we saw oil follow gasoline lower. However the metal stocks were very strong we saw a pullback in …” …more details…
“…The first quarter, in the biggest drop in seven years. Hewlett-packard picking up the market share while dell lost it. You're seeing some mixed trading. Largely to the up side. IBM, the only losing share despite the news and upgrades. Microsoft, this is the most actively traded stock in this is the biggest market cap company here. When microsoft is up, the market is up. …” …more details…
“…Things, as I said, that pushes us to the up side levels, 950, 970, 1,000. >> one great thing I like seeing is that there are a lot of companies, microsoft, IBM, amazon, google, very cash-heavy and starting to put the money to use researching and developing, coming out with new products and that's why you're seeing this with apple, iphone, r.I.M., palm …” …more details…
“…If you think back, I know that when intel first eachopened its first plant, I remember bob telling me and other people that this was going to revolutionize things and people at IBM laughed and said, that's ridiculous. No one will pay up for a pc. He said, they won't have to. Do you think people just don't see it like they didn't see what would happen with the pc? …” …more details…
“…This is classic restructure, early stages. I think they'll mess it up. They'll get palm or something. They're trying to bring the guy in from IBM to do something big. I think it's hard to do that what is this company? It's like admitting that their core business is never really going to turn around. I can't blame them. It's a very tough business. …” …more details…
“…The economy is -- you know, until recently it was booming. Now, the question is how do you stop it? You have to consider another important fact, that for example, they get 69% of the revenue from overseas, IBM gets 65% of its revenue overseas. So, if you say we're going to close the doors, other countries will stop buying our goods and we're going to lose more jobs …” …more details…
“…Yourself for a global recovery. That means real estate investment trusts. That means more that means some energy in the that means small cap. And it means technology. Names like IBM, microsoft, >> you're hitting all the food groups, then. I mean, really, you want to -- >> we've left out telecom. We've left out utilities for …” …more details…
“…I'll give you a papelbon boo-yah. >> strong player. He sat out against the phils last time. >> caller: I was wondering about your short and long IBM. >> I like the stock. I like to think it will close at $105 on friday. Expiration pressure could take it down, where, again, I would pull the trigger. Not a $107, but a $105. …” …more details…
“…Hour or so. As I said, we're kind of drifting into the close before the closing bell. >> there is strength in a number of tech names, google, move the, IBM doing well despite the decline in the nasdaq. The ppi report showing inflation right in check right now but should investors be concerned about inflation ahead or is deflation a bigger problem? …” …more details…
“…>> in addition to the retailers, you have the banks under selling pressure today. Stocks like jpmorgan, citi down. Teelg on the upside. IBM on the upside as is microsoft. Once again, technology, google also on the upside. Really among the leadership groups on the upside. Let's get to our team covering the marks right now. …” …more details…
“…If we don't pop into the heat pretty soon, natural gas trade will fate into the fall. >> didn't know you were a meteorologist to boot. Technology shares are also IBM, microsoft and dell among the top traders. Joe, I know you have been a fan of IBM. >> what do you see in these names? >> asset allocation and the industrial numbers today, they will you we are operating in an inflationary environment. …” …more details…
“…From $65 from $57. Weyerhowser has a target price at IBM. The old target was $120, going to $140. That company's stock moves >> yes, it does. >>> we have breaking news on the way. Best buy, those results are …” …more details…
“…Winner. Matt in missouri, matt. >> caller: hey, jim. My question is s.A.P. I'm starting to question their ability to grow earnings, is the speculation of an IBM takeover a reason to hold the stock. >> whoa, look out there. I've got to throw the flag. Unsportsman like, we do not recommend stocks on takeovers when we feel the fundamentals …” …more details…
“…In terms of year-to-date performance and also one and two we would at this point play for short ford. >> in the tech space. >> IBM, basically consulting businesses, same levels of profitability, look at roe over time, and at this point, IBM has popped from 70 to 110, and accenture unchanged wrchlt the correlation is broken down, play for convergence. Same kind of thing. And finally, obviously a …” …more details…
“…Of what they're talking about, but they've definitely in most cases talked about some bottoming. Look at the reaction today, microsoft was positive. IBM was dang near positive. You're talking about a lot of the stocks in the technology space that are holding on and holding on and still building >> this is going to provide a lot of insight for going back …” …more details…
“…These are products and services that increase productivity. When companies are spending money, we don't think hay i'll rehire people quickly. We think they'll look at IBM and looking to enhance productivity and get the bottom line up again. >> I was in silicon valley last week and intel and cisco both said they were seeing signs of life out of china. …” …more details…
“…>>> all right, folks. 15 minutes into the trading day here on "squawk on the street." you see the dow down 120 points. 28 to 30 members are lower. Everybody but microsoft and IBM. The s&p 500, all ten sectors are trading lower here today. The best performer is going to be the telecom and the tech and the financials are clouing their maybe there's hope there. …” …more details…
“…Hp's profits. Hp really is a diversified technology conglomerate. So its fortunes don't ride solely on pcs. >> when you look at that chart, though, the chart you just put up, it looks just like the ibm yes, it's lagged. But has it already outperformed I mean, shouldn't we wait for a pullback, or is $35, $36 something that's still I had a lot of puts hitting our …” …more details…
“…>> jared, thanks so much grour jared levy of peak six. The top analyst says i'm a pc. Hewlett-packard largest pc maker set to report second quarter earnings tomorrow afternoon. Will the company follow in ibm sxin tell's steps? Joining us is a man who says tony sack nagi of sanford bernstein on why he is sticking with pcs. You're expecting solid results out of hp but is that going to be enough to be a catalyst for this stock which has outperformed its rivals ibm as well as dell? >> I think it will be a modest catalyst. Now is a good time to buy the stock sin expensively valued. It does well if the market …” …more details…
“…Concerned that there is no top line growth, but stocks up 34% m & a activity, ibm pharmaceuticals, apparently, there was an offer to buy idm $75 million. …” …more details…
“…You have an impaired balance this stock still down 41% year over year. I'm long this name. I still think there's room to ibm, the name is up about 30% today and 70% on the month. I would be very cautious. >> we answer all your burning oil is higher more than 3%. …” …more details…
“…Our "fast money" viewers are believers in this pc name. We asked if you would buy ahead of the earnings. 57% of you said yes you would, ahead of an expected beat. Just like ibm, intel as well as sis skoe subpoena to that the right trade? >> i'm going to stick to my guns with cisco I did it, amd I did I would collar buy a put, sell a call against it. I would be careful approaching >> you're a buyer of ibm. >> i'm a buyer of ibm and hue hewlett-packard you hear the ent sentiment that everyone stalk talks about. No one believes the rally. It's bln great, but let's move …” …more details…