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International Business Machines (IBM) Stock Analysis
International Business Machines (IBM) Dividend
International Business Machines (IBM) has paid a dividend since 1913 and increased its dividend for 27 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend Annualized: $6.60
International Business Machines (IBM) Intrinsic Value – Margin of Safety Analysis
(updated November 2022)
Normalized Diluted Earnings Per Share (TTM): $1.51
Free Cash Flow Per Share (TTM): $7.75
Cash Flow From Operations (CFO) Per Share (TTM): $9.98
Estimated Intrinsic Value: $134
Target Buy Price Based on Required Margin of Safety = $103
(Required Margin of Safety Based On Risk Stability Grade:
A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $147
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: C
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: C
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Business Quality Grade: C
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 9/30/22
AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – LONG
Treasure Trove Dividend – LONG
Global Dividend Balanced – LONG
Global Value – None
Global Value Aggressive – None
Global High Yield – LONG
Industry: Information Technology Services
International Business Machines Corp looks to be a part of every aspect of an enterprise’s IT needs. The company primarily sells infrastructure services (37% of revenue), software (29% of revenue), IT services (23% of revenue) and hardware (8% of revenues).
IBM operates in 175 countries and employs approximately 350,000 people. The company has a robust roster of 80,000 business partners to service 5,200 clients – which includes 95% of all Fortune 500.
While IBM is a B2B company, IBM’s outward impact is substantial. For example, IBM manages 90% of all credit card transactions globally and is responsible for 50% of all wireless connections in the world.
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.
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 acquisition of Red Hat is transforming the company toward new Cloud technology.
The data and analytics businesses face fierce competition from small enterprises and large companies such as Amazon, Oracle, Cisco, Microsoft, and Intel.
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.