IBM (IBM) Stock Analysis
IBM (IBM) has paid a dividend since 1913 and increased its dividend for 21 consecutive years; qualifying the company as a Dividend Contender .
Current Dividend: $6.00
Dividend Yield: 4.1%
Cash Dividend Payout Ratio: 46%
Market Capitalization: 139 B
Enterprise Value: 178 B
Industry: Information Technology Services
IBM is the largest Information Technology (IT) service company in the world. The company operates in more that 170 countries and benefits from many long term maintenance and outsourcing contracts that provide revenue stability.
The company is in the process of reinventing itself by shedding low older low margin businesses and investing heavily in big data. Business analytics, enterprise IT, cloud computing, mobile technologies, and security are all part of the new emphasis of the modern IBM.
Powerful analytics make data useful and the new “natural resource” of business. Enterprises of all types are seeking a competitive advantage by converting data into insights and actions that add value.
IBM is spending billions on research & development and acquisitions to move quickly into these growing segments. A major part of the core of this strategy is IBM Watson. IBM describes Watson as “a technology platform that uses natural language processing and machine learning to reveal insights from large amounts of unstructured data.
The business model is to use IBM’s global capabilities, expertise, and innovation to provide integrated services and solutions for customers. Their mission is to provide clients the technology (mobile, social, cloud, security, etc.) to interact, engage, and analyze data.
Dividend Analyzer Checklist
(updated April 2017)
Dividend Safety Score (17/33 points)
Dividend Per Share (ttm): $5.50
Dividend Payout Ratio (ttm): 44%
Dividend Per Share (10 Year Growth): 17.5%
Cash From Operations (CFO) Per Share (ttm): $17.69
CFO Dividend Coverage (CFO / DPS): 3.2 (3/6 points)
Free Cash Flow (FCF) Per Share (ttm): $13.36
FCF Dividend Coverage (FCF / DPS): 2.4 (4/6 points)
Net Financial Debt: $33641 M
Total Assets: $117470 M
Net Financial Debt / Total Assets: 29% (5/12 points)
Net Financial Debt to EBITDA (ttm): 248%
Total Liabilities to Assets Ratio (Qtr.): 84%
Piotroski Score (1-9) (TTM): (5/9 points)
Profitability & Growth Score (14/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: -1.3% (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 7.3% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 1.2% (0/6 points)
Operating Earnings Yield (ttm): 7.8% (3/7 points)
Net Income (ttm): $11872 M
Gross Profit (ttm): $38294 M
Total Assets: $117470 M
Gross Profitability Ratio = GP / Total Assets: 33% (7/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 22%
Return on Invested Capital (ROIC): 20%
Return on Invested Capital (ROIC) (5 Year Median): 27%
Return on Invested Capital (ROIC) (10 Year Median): 27%
Valuation Score (23/34 points)
Free Cash Flow Yield (ttm): 7.7% (8/9 points)
EV to EBIT (ttm): 15.3 (4/9 points)
EV to EBITDA (ttm): 11.4 (5/9 points)
PE10: 15.2 (6/7 points)
Price to Sales Ratio (ttm): 2.1
Price to Book Value (ttm): 9.0
Price to Earnings Ratio (P/E) (ttm): 14.1
TOTAL POINTS – (54/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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SWOT Analysis For IBM
Part of IBM’s moat is its long and successful customer relationships and revenues that are recurring or “annuity like”. This is providing the company the ability to transition its larger customer base from old lower margin businesses to new higher margin, higher growth products and services.
The company has been able to use its large free cash flow to invest heavily in the future (R&D and acquisitions) as well as buy back significant amounts of its own stock (approx. $115 billion and 34% of outstanding stock in last 10 years).
IBM’s old mainframe business is in a long term decline. Over the last 10 years the company’s Revenue growth is negative, Cash Flow from Operations (CFO) is barely positive, and Earnings Per Share (EPS) are only positive because they bought back so many shares.
Innovation and new products are a tradition at IBM. The company consistently tops the annual list of U.S. patent beneficiaries.
IBM’s long term customer relationships, stellar reputation for products and services, and ability to manage complex systems allow the company to gravitate to higher margin and higher value relationships.
The data and analytics businesses face fierce competition from small enterprises and large companies such as Amazon, Oracle, Cisco, and Intel.
(updated April 2017)
IBM is ranked #83 (out of 254) overall and 11 (out of 16) in the Technology Sector by the Dividend Analyzer.
The the fact that the company has experienced negative revenue growth and almost non-existent cash from operations growth the past 10 years cost the company 10 points in the Profitability & Growth Score. If you believe the next 10 years will be more positive you can assume that their score is lower than it ought to be.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Can Be Considered
Looking For Exposure to Consumer Defensive Sector / Can Be Considered
Deep Value Investors / Avoid
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