IBM Fundamental Research Investment Analysis, International Business Machines Corp.

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The Razor's Edge

2-Year Price History

Recent Price
(2/6/2009)
$96.14
52-Week Price
$69.50 - $130.93
Market Capitalization
$129.2 Billion
Dividend Yield
2.10%
Most Recent Dividend
$1.90

About International Business Machines Corp.

International Business Machines Corporation is considered to operate in the Technology sector. They specifically operate in the Diversified Computer System business segment contained within the Computer Hardware industry.

The Company is a globally integrated enterprise that targets the intersection of technology and effective business in software and services.

Ockham's Rating

We are reaffirming our Fairly Valued rating for the time being because there have been no major changes in our analysis in the last week. In the following report we will look at the stock versus itself historically, which is clearly useful in order to evaluate if a security is overvalued or undervalued. In addition, we analyze the stock as a member of the Technology sector and the market as a whole to understand the volatility and risk and reward potential.

What can you say about this market? No one likes to see the market going down so rapidly, but in times like these value investors should be cautiously opportunistic, as the market's decline has certainly uncovered some great bargains. We are simply reiterating IBM's Fairly Valued rating as of this week, as IBM's sector has resisted the downturn to some extent. Our analysis of this stock is little changed since last week's report, but please continue reading for further justification of our Fairly Valued rating.

It is often helpful to begin our analysis with recent price changes, the price of IBM rose from $91.65 as of 01/31/2009 to a price of $96.14 as of 02/07/2009. While this increase of 4.90% was not large enough for Ockham to downgrade the stock, it does however slightly lessen the attractiveness of IBM.

As of this report, there have been no meaningful adjustments in cash earnings expectations or guidance in the last week.

IBM Stock Evaluation

We are reiterating our rating of Fairly Valued on IBM at this time. As described in the Recommendation Summary, we have not seen any additional guidance or change in expectations to IBM’s earnings, but we have seen a relatively significant increase in its share price of 4.90%. This increase in price is significant and should be noted as we look further into the fundamental picture of IBM below.

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 1.45x and the low end of the range at 0.97x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for IBM of 1.19x is slightly under its historical average. This level of Price to Sales gives us a fairly neutral position on the IBM shares. We would like to see a drop in the Price to Sales ratio just a little bit more (given current sales figures) before we would become more positive on a Price to Sales basis. Such a drop would increase the attractiveness of the stock but, as always, would need to be considered in the context of all other valuation factors.

IBM Cash Earnings

Looking at IBM specifically in their Cash Earnings capabilities, Ockham views IBM as below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from IBM. For example, IBM's Cash Earnings ratio per share has fluctuated between 6.70 and 10.14 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where IBM is with respect to prior business periods.

So what does a Cash Earnings ratio below the historical norm mean for IBM? Generally, IBM's investors have paid slightly higher stock prices for this level of Cash Earnings, which bodes well as a return to historical norms is statistically likely. However, it is never a guarantee that history gives us proper direction, particularly in fluctuating market cycles. So by utilizing a long term view and incorporating other areas of analysis (like Sales, Dividends, and management analysis), each investor can gain a more complete view of IBM. Remember, that the average Cash Earnings level for IBM has been 8.42, so the current Cash Earnings level of 7.17 is a positive in our view, but by no means is it overwhelming.

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 $2.00 producing a current dividend yield of 2.08%. The highest dividend yield from IBM in recent history was 2.88% while the lowest dividend yield was 0.38%. IBM’s current dividend yield is therefore significantly higher than its median dividend yield historically. In fact, the current yield is 27.61% above the median which weighs very positively on our analysis of IBM.

Peer Comparison

:

International Business Machines Corp. Industry Grouping

(2/6/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding IBM) 8.25 7.38 » 348.70 1.43 1.14 » 14.10 19.26% 25.50%
*10 year range does not include current year values
International Business Machines Corp. IBM $129.2 Billion $96.14 7.17 5.61 » 27.38 1.19 0.90 » 2.68 4.00% 29.90%
Cisco Systems, Inc. CSCO $99.8 Billion $17.04 8.69 10.95 » 261.76 2.39 2.99 » 30.95 15.94% 22.80%
Hewlett-Packard Company HPQ $89.0 Billion $36.85 6.63 6.18 » 62.91 0.78 0.54 » 3.10 10.13% 14.46%
Apple, Inc. AAPL $88.6 Billion $99.72 14.23 9.73 » 186.01 2.18 0.75 » 5.63 39.23% 18.06%
EMC Corp. EMC $24.4 Billion $11.95 7.56 5.81 » 1171.43 1.50 1.16 » 25.97 19.46% 9.36%
Dell, Inc. DELL $18.4 Billion $9.46 4.15 4.25 » 61.40 0.28 0.27 » 4.87 11.54% 62.82%
Current
Rating on:
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RazorWire™ & Community Discussion

Fast Money
2/9/2009 5:35 PM
Fast Money
It's up 20 -- he's right because -- my newborn baby looks exactly like jeff. She has no hair. If you look, apple's up 20% this year. IBM's up 15% this year. Those names are working. And don't forget biotech, god, a lot of cash out there in the pharma world. And biotech's the place to spend. >> all right, joe, enjoy the new >> give my wife your best.
Fast Money
2/9/2009 5:32 PM
Fast Money
You as the most stainsable? >> I think, dylan, if you look at health care, you look at technology there, san underlying theme. It's working so far this year. Go back to the week the obama inauguration. You had apple, you had IBM and you had google -- all reported earnings. In each of those cases, you got earning surprises and you got those -- each one of those three stocks that have rallied. You're talking about innovative
Fast Money
2/6/2009 5:11 PM
Fast Money
Taiwan's semi, people talking about their inventories being worn down. They're in a plals they're starting to see demand. >> it's performance, who's performing and who's not. Look at the last cycle. IBM, they have performed. Apple. Forget steven jobs' health for a moment, their numbers were outstanding. Look at research in motion. A lot of analysts on the street continue to add more and more every single day in a positive
Closing Bell
2/6/2009 4:59 PM
Closing Bell
At the day on wall street. A blockbuster week, the nasdaq blowing the doors off. IBM was the biggest mover in the dow for the second week running. It was up about 5% on the week but a good day on the market "fast money" is coming up next. Thank you for watching. I am melissa francis in for
Closing Bell
2/6/2009 3:45 PM
Closing Bell
That's a good way for the investors to expand the risk profile and knowing they are not the same as equity. Start slow. >> a name like IBM is one of the best gainers on the dow this how would you recommend playing a stock like this? It will be in business 20 year from now and you have earnings clarity from a company like IBM. Do you go ahead with the equity or on the debt side? >> IBM will be a name like qualcomm or apple which are going to participate from what's happening in china or asia. That will be the early leader out of this downturn. The u.S. Is okay, but china
Closing Bell
2/6/2009 3:44 PM
Closing Bell
Will also benefit from the passage of a bank or stimulus >> from january 20th, up 4% from the s&p. The technology and apple and amazon and IBM. Consumer staples have been unapproached of late.
Power Lunch
2/6/2009 1:38 PM
Power Lunch
29 billion in cash on its there seems to be traction in the idea that strong balance sheets among the leaders in their respective sectors might be enough to attract investors back to tech. IBM, microsoft, google and research in motion, top names enjoying a surge all week long. In fact, as we've just been seeing as far as the nasdaq is concern, tech in general surging
Squawk On The Street
2/6/2009 9:54 AM
Squawk On The Street
In the tech sector. Our own jim goldman, silicon valley bureau chief. Andy, let's start with you. When you look at the dow so far this year, the only stock that was up was IBM, then you have some of these others, we mentioned amazon that are is this a momentum trade that will keep going? Do you buy them? You say too fast too far? What do you do? >> the market's obviously in a
Squawk On The Street
2/6/2009 9:49 AM
Squawk On The Street
Up next, some lesser known stocks making moves this beacon roofing. I think it's fair to say that's a lesser known name. >> I would say so. Plus IBM, google, amazon all up on the month. Are these solid signs of life as potential leadership? Tech sector?
America's Nightly Scoreboard
2/5/2009 7:25 PM
America's Nightly Scoreboard
What did you learn? >> the key here, the listen about, the computer from that list you're talking about with dunn ton, some of the names are generated IBM-as 400. We talked with a guy snamed ibrahim. He worked with madoff, 2000 to 2003. He serviced all computers. He told us who had access to
Fox Business Happy Hour
2/5/2009 5:24 PM
Fox Business Happy Hour
Stimulating. Rebecca: what about all the spending on infrastructure? President said it will create or sustain three to four million jobs? >> president wants three infrastructure plan, the one IBM came up with projects a bill will generate a million jobs. I think that part of it is real. For example, the power grid more efficient that makes a lot of sense. These are two, three, 5-year so, I think they're excellent ideas but I think IBM part of it will generate jobs but that is long, won't do anything this year. Rebecca: you're a very, very smart person. I was reading a lot of your research, fascinating research what you guys do. What are you doing
Countdown to the Closing Bell
2/5/2009 3:03 PM
Countdown to the Closing Bell
Related stocks, including names like cisco systems, java, juniper, they're all trading higher at this hour, google, apple, yahoo! Seeing strength today and google and IBM coincidentally announcing a deal where they're going to team up to make health records more transferrable, more transportable and accessible to the masses and deal news coming out of google.
Street Signs
2/5/2009 2:53 PM
Street Signs
This time the euro will stay maybe we ought to temper and predict currency. >> last thing. Play with me on my thing of the day. >> I really don't know IBM or bank of america. They are not my cup of tea or religion. >> which do you like? >> I like IBM more. Sam was on tv on closing bell and it's very clear that the story of IBM is a share tech story that I think will get better you tarnish. IBM has great momentum. In technology stocks, that matters huge. This stuff can go to 110 and it wouldn't be expensive. Bank of america, you mind if we wait to see?
Fox Business
2/5/2009 2:39 PM
Fox Business
Unanswered and one thing can be sure, investigators are zeroing in on that computer part of our discussion with nader ibrahim. An old IBM, told us not ideal for trading stocks and not ideal for that job. >> liz: a-ha, that job he possibly wasn't doing.
Street Signs
2/5/2009 2:28 PM
Street Signs
>> here's a question to each of so far this year, bank of america down 66.66%. Now that that would be significant together. IBM is up 10%. Which is a better buy right now, bank of america or IBM such. >> depends on whether you're a buddhist or shintoist and does does IBM on its own have merit? Does the bank of america have
Street Signs
2/5/2009 2:25 PM
Street Signs
You're going to weigh in on the IBM conone drum. What do you see in there? >> clearly issues about weless and streaming broad band down the road.
Squawk On The Street
2/5/2009 10:52 AM
Squawk On The Street
Sheet, that's when people come >> the answer to your question is they're buying tech because it's an early cycle play and there are still people who recovery and a company like IBM, they're growing every year. They're basically servicing the they're taking over tech operations from big companies. Can I make a point about your story earlier about the dow jones industrial average stocks
Squawk On The Street
2/5/2009 10:50 AM
Squawk On The Street
Away from financials. >> the momentum -- there's been interest in tech. One of the only things interesting in the last month. >> the rallies we've had have been in techland. >> and IBM has been the leader. >> nobody is touching everyone is looking for the new leader, and as bob said momentum right now is tech. Is tech going to replace the old leader, which was the financials and energy?
Squawk On The Street
2/5/2009 10:50 AM
Squawk On The Street
Encouraging because everyone thinks they were going to zero, so make of that what you will. >> the answer su buy IBM obviously because there has been significant retail buying in >> you are such a wet blanket. >> what is the answer? >> as a trader you're staying away from financials.
Squawk On The Street
2/5/2009 10:50 AM
Squawk On The Street
>> weil we've rallied nicely off hogan's bottom. >> steve frankel and bob pisani we pose the question bank of america down 66% for the year, IBM up 10% for the year, that's just in the past month. Which would people think bank of america. >> you are taking credit -- >> I didn't take credit, I just >> the bank is up. >> you're just stating the
Fox Business
2/5/2009 10:49 AM
Fox Business
I don't think you want to be in companies that have weakened balance sheets. >> like who, like who? >> I think the ones that you want to emphasize are the 800 pound gorillas, cisco, IBM, intel, even applied materials and semiconductor capital even google, I think if you buy those stocks you'll be very happy with that basket. Not necessarily in the short-term, but in the >> brian: I mean, you know,
Fox Business
2/5/2009 10:47 AM
Fox Business
Not necessarily received very warmly by the unionized labor force on the transit this I almost walked to work. Tech sectors has been relatively strong as of late and positive earnings from powerhouse, google, apple and IBM and cisco beating a lowered estimate and still beating the street and about 30 billion in cash, not bad. Is the technology rally, mini rally here to stay or is it just a couple week wonder.
Squawk On The Street
2/5/2009 10:45 AM
Squawk On The Street
Night's deep freeze. Erin and mark, back to both of you. >> okay. Up next, is now the time to jump in for the long haul? We'd ask people do you buy IBM, up 10% this year, or bank of america which was down 66.6? And a lot of people say they would buy bank of america right now.
Squawk On The Street
2/5/2009 10:27 AM
Squawk On The Street
I think b of a will survive and be a huge force to reckon with as time goes on because of merrill lynch and countrywide. >> 20 seconds, craig. >> i'll take the other side. I'll say that IBM is the better risk right now because the risk of b of a is still very I like the risk reward of IBM >> a vote for IBM, a vote for b of a.
Squawk On The Street
2/5/2009 10:26 AM
Squawk On The Street
Issues higher up in the capital but for the broader economy overall, it's still very important. >> quick test to each of you the best stock in the dow so far this year according to rich peterson is IBM. The worst is bank of america, down 66.6%. That could be a bad omen. Which is a better buy right now? >> I go with b of a. Very difficult time right now. You know I like to buy by the
Squawk On The Street
2/5/2009 10:24 AM
Squawk On The Street
Craig, let me start with you. Justin walters sent this over. And he is the one that alerted you've got the nine smallest stocks in the dow right now, add them up and they equal the weight of IBM. Five stocks. Ge, bank of america, citigroup, gm, alcoa represent less than 100 points on the dow. Should the dow change in response to this? Get rid of them?
Fox Business
2/5/2009 10:19 AM
Fox Business
Running what we now know to be the fraudulent private investment securities firm in which he has allegedly defrauded 50 million from his clients. On that floor was a computer. It was an IBM as-400. We were told this is the the statements for thousands of people who say they've lost now billions of dollars from mr. Madoff, that's the computer that printed the statement. There was a group of people on
Squawk On The Street
2/5/2009 10:06 AM
Squawk On The Street
If you take the nine lowest priced stocks on the dow, which includes bank of america down another 15% today, ge, citigroup, all those thing, the nine lowest out of 30, that equals one IBM. Now, IBM is the only one that's up for the year. If I put those things together, I would say the dow is showing a better picture than the world really is. Here the dow is hitting a low. >> it is showing a very
Squawk On The Street
2/5/2009 9:30 AM
Squawk On The Street
>> i'm going to throw this quiz at bob pisani. Do you know what stock it is that's up this year? >> mcdonald's? >> it's IBM. I wasn't trying to put you on the spot -- well, yes, I was. >> you said that a month ago and it wasn't IBM. >> I think it's probably up 30% since the november bottom? >> yeah, you're probably right. From the end of the year till now, IBM was up 10%. Walmart was the only one that this year so far -- >> I get it. >> walmart is down 17%. >> in fact -- and sitting at a new low right now.
Countdown to the Closing Bell
2/4/2009 3:17 PM
Countdown to the Closing Bell
We had yesterday just can't be what's at the heart of that. >> I think kraft food, you hit the nail on the head. The IBM, two stocks up and out of the dow and I think that's hurting the tone of everything down here, plus, ge trade to go the low side and you have the financial side like bank of america trading below and
Squawk Box
2/4/2009 6:37 AM
Squawk Box
Several banks go out of it may mean the rest of the market needs to go higher. >> we've seen the health care sector up on the year. IBM is the strongest performer in the dow, nasdaq best performer. Probably you see money flow into the stronger stock.
Closing Bell
2/3/2009 4:41 PM
Closing Bell
That's why that sector for us is held up well. >> they are still spending? >> transaction volumes and all manufacturing plant and the large IBM computer. They are buying things as well. >> for a long time you spoke about the countries and other emerging economy. A big portion of the business
Closing Bell
2/3/2009 4:36 PM
Closing Bell
>> welcome back to IBM shares and the best performer since november with the market bottom of recent movements. IBM shares up 21.5% since november in an effort to stimulate the economy. President obama wasted no time reaching out to corporate they gathered at the white house to discuss the economic stimulus plan. One was the head of IBM. The chairman and ceo. Earlier I sat down in an exclusive interview and asked him what that meeting was about and how it impacts the plan to
Closing Bell
2/3/2009 4:33 PM
Closing Bell
Home. >> from the census bureau, the homeowner vacancy reached maria? >> up next, the interview with the IBM chairman and ceo. He is talking to me about president obama. He along with top business leaders met with the president to discuss the stimulus and also he is a great window of
Closing Bell
2/3/2009 4:13 PM
Closing Bell
Betting on corporate bonds right now. An exclusive coming your way. Sam sits down with me, giving his outlook for technology and how IBM is planning to expand and why is IBM is best performer
Fox Business Bulls & Bears
2/3/2009 4:10 PM
Fox Business Bulls & Bears
Do with the soap opera between the house and senate and more about what is happening in cooperate america. IBM a couple of beaks ago beat and affirmed for 2009. Some, like disney are this group of companies is doing
Closing Bell
2/3/2009 3:12 PM
Closing Bell
One of the few bright spots of '09. Big drug, little drugs and every drug in between coming up. >> after the bell, we have an exclusive first on cnbc with the head boss at IBM. This is a great vandage point. We will talk about the technology and how it's bearing in the economic environment. Which are still spending.
Countdown to the Closing Bell
2/3/2009 3:01 PM
Countdown to the Closing Bell
But first, let me get to nicole petallides at the new york stock so is it just merck or a better sentiment overall on the floor? >> it's pretty much-- wal-mart, IBM, a few leaders on the dow jones industrial average i'm looking at up volume versus the down volume. Outpacing 5-3 so you can see the action is here to the upside and henderson talking about the
Squawk On The Street
2/3/2009 9:18 AM
Squawk On The Street
Financials in the short term right now. You look at minnesota mining down from 30. Gm from 40 down to three. This year alone IBM up. The market is so week. Less confidence among everyone we're just tradeingeingeing sideways.
Closing Bell
2/2/2009 3:39 PM
Closing Bell
But that's probably deserved because they continue to lose market share when you're talking about the pc sales, which are dropping dramatically. They're losing it globally. They're losing it in the u.S. They've got to get a spark. They've got to get growth. IBM did their largest acquisition ever. They did a lot of acquisitions last year. But their largest was cognose. You look at the eds deal with there's a lot of deals being done out there. There's cash to be spent.
View All International Business Machines Corp. Comments

Key Fundamentals

IBM - International Business Machines Corporation Fundamentals
Price (2/6/2009) $96.14
Volume (2/6/2009) 12.7 Million
10 Day Average Volume 10.2 Million
13 Week Price Range $69.50 - $97.10
52 Week Price Range $69.50 - $130.93
LTM Revenue $103.6 Billion
 
Shares Outstanding (12/2008) 1.3 Billion
Market Capitalization $129.2 Billion
Shares Held By Institutions 835.9 Million
Institutional Holders 1,897
% Shares Held By Institutions 62.20%
Earnings Per Share (EPS) $9.07
P/E Ratio 10.60
Book Value Per Share $20.48
 
Gross Margin 47.50%
Quarterly Dividend 2.00
Dividend Yield 2.10%
Beta 0.94
Fiscal Year Ends December