Analysis of IBM 2015

Company: IBM

ISIN US4592001014 | WKN 851399

Business: An American IT service company. They are currently standing on five larger pillar: Global Technology Services (IT infrastructure and business process services), Global Business Services (Consulting and Application Management Services), Software (middleware and operating systems software), Service & Technology (business solutions requiring advanced computing power and storage capabilities) and Global Financing (invests in financing assets, leverages with debt and manages the associated risks).

Active: World wide making sales in over 170 countries.

P/E: 13.2


Here you can find the previous analysis of IBM 2014.

The P/E is fully acceptable for IBM with 13.2 but the P/B is insane high with 13.4 which gives us a no go from Graham. The earnings to sales are looking good with 13% and the ROE is insane (and artificial) with over 100% which comes from their high debt and decrease of equity via for instance their massive share buy back programs. The book to debt ratio is therefore very low with 0.1 which looks more like a heavily leveraged bank than a service company.
In the last five years they have had a yearly negative revenue growth rate of -1.5% which is bad and this then gives us a motivated P/E of 8 to 10 which means that IBM is today slightly over valued on the market.
They spend a big chunk on research and development which correspond to 45% of their earnings which I find to be very high but still on an acceptable level.
They pay a, for American standards, ok dividend of 2.4% which correspond to 31% of their earnings so they should be able to keep it up in the future.

Conclusion: Graham says no to IBM and I do not agree with him. The P/E and dividend are still looking very good for an American IT giant and even though the P/B as well as the ROE are messed up I still see no fear of investing into IBM. I will keep my shares for as long as Warren does and if it were not for the decreasing value of the € I would have considered increasing my position but currently I am a bit reluctant to step into US companies.

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