is ibm overvalued as an it hardware company?

by:DIgao     2020-06-24
Like many investors, I interpret my position as a revenue method. With IBM (NYSE:IBM)
Over the past few weeks, Yahoo Finance has given me a link to Barron, where I found an article based on Tony saconagi, as a member of IBM, he won a reputation.
The main point is: Is IBM an it hardware company?
Segment information is useful here.
The system part is 9.
Income of 7%, 6. 3% of pre-tax margin.
88 are cognitive solutions, global business services, technology services and cloud platforms.
Income of 3%, 87. 8% of pre-tax margin.
Here\'s how the company describes itself from 10-
K: It is inaccurate to think that IBM is an It hardware company.
Its revenue and profits come from other places.
Hardware accounts for less than 10% of the company.
It\'s a software company.
What is exaggerated?
As used in the analysis cited above, the term clearly means \"exaggerated\" compared to \"Adjusted\" numbers \".
IBM\'s FCF is a recognized accounting standard, so it cannot be accurately described as being exaggerated.
More accurately, as historical information, it may not be as useful as a forward-looking estimate of serious development.
I will provide one at the back of the article.
The main items cited as exaggerating the reasons for the allegations are the large amount of tax rebates and the income from the sale of intellectual property (
Intellectual Property).
IBM\'s critics often cite these remarks, accusing them of being manipulated.
The fact is simple: a few years ago, IBM paid taxes in Japan, successfully challenged the supreme court along the way, won the case, and thus received a refund.
In the sales of intellectual property rights, IBM has done research and development work, but the cost cannot be capitalized.
So when it sells the final product, the company has booked it to reduce the cost of R & D.
IBM has been doing this for years, consciously working to bring the activity back to its previous level, and has had an excellent year.
There is no secret in this.
Booking a tax refund before winning the case is a very aggressive accountant.
Similarly, capitalization of R & D is evident in accordance with GAAP.
So they go straight to the bottom line when the deal happens.
Large, complex companies like IBM, these types of \"discrete \"(
A trade term
Time occurs)
Can be expected regularly.
CFO Martin Schroeter at the 2016 earnings call in the fourth quarter, when asked about IP sales, responded as follows: Sacconaghi is on the phone, so he knows there will be IP revenue in the future, some are repeated in nature, not one-time.
After reciting the differences, he asked if the Schroeter guidance reflected the inflection point and got a positive answer: for IP, for PTI (pre-tax income)
And security deposit.
But when he wrote out his research, he came back.
I didn\'t quote this sentence because it was too long, but curious readers could go and search for \"inflection points\" on the transcript \".
\"The valuation based on comparable si went through 10-
K, in the competition, and selected the relevant competitors from the above competitors.
I created a table showing the estimated value of the symbol, EPS growth (in percent)
The next 5 years, and the current valuation of EV/EBITDA.
I made a linear regression and developed a formula: EV/EBITDA = 0.
46 EPS growth of 9. 83.
This is a Graham type formula similar to his PE = 2g 8.
5, where G is a percentage increase.
Applying my formula, I developed the estimated fair value of the EV/EBITDA shown in the second to last columns, as well as the estimated fair value share price in the last column.
This information shows that IBM\'s value is moderately undervalued compared to its competitors, based on which it is worth $179 today.
The math is that the share price is divided by the current EV/EBITDA multiplied by the estimated fair value EV/EBITDA: $170/10. 43 X 11. 01 = $179.
Use linear or multiple
Linear regression was useful to me in the past.
Specifically, I applied this method to IBM in November 2015.
With a market share of $140, I hope to get $190 by November.
Shares topped $182 in February. Forward-
Since EV/EBITDA is a widely used metric on the Internet, I chose it for comparison.
I think this is more appropriate than the historical Adjusted FCF.
\"Those who make adjustments, both management and analysts, have great difficulties.
Unless you have patience and perseverance to adjust the FCF for the competitor\'s related areas, this indicator is difficult to use for comparison purposes.
To develop a forward estimate for EBITDA, I worked with the GAAP guidelines from management to get $2017, \"at least\" $11. 95.
How did I do it?
As shown in the figure, I predicted EBITDA to be 2017 at $18. 542 billion, an increase of 6. 9%.
The question is, what kind of growth will the market see? I dropped 6.
There are 9% in the form above, which requires a share price of $222.
Continue with 2. 56% 5-
The stock price is expected to grow by $183 this year.
At the same time, the company paid attractive and safe dividends.
Long term management
Long-term business models require high-order EPS growthdigit range.
If this is achieved, the share price will be much higher than $200.
Summary and conclusion IBM is worth $179 today and should trade at $183 by the end of this year.
What about Watson?
As a separate project, IBM declined to provide revenue and profit information for Watson.
It is included in many products and if it succeeds then the main part will show the growth of high profit income.
When reporting revenue, I plan to review segment growth and profit margins and revise my point of view as the facts evolve.
I will be pleased if I see further signs of the inflection point.
I am/We Are IBM.
This article was written by myself and expressed my views.
I was not compensated.
I have no business relationship with any stock company mentioned in this article.
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