DCF Studio

    IBM · NYQ · Technology

    International Business Machines Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 156.74

    Market price

    USD 229.55

    Implied upside

    -31.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 156.74-31.7%
    Exit multiple
    USD 230.34+0.3%
    Market price
    USD 229.55

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn9bn18bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 70.0bnUSD 72.7bnUSD 75.4bnUSD 78.2bnUSD 81.1bn+3.7%
    EBITUSD 11.1bnUSD 11.5bnUSD 11.9bnUSD 12.4bnUSD 12.8bn+3.7%
    NOPATUSD 9.6bnUSD 9.9bnUSD 10.3bnUSD 10.7bnUSD 11.1bn+3.7%
    Add depreciation & amortisationUSD 5.2bnUSD 5.4bnUSD 5.6bnUSD 5.8bnUSD 6.1bn+3.7%
    Less capital expenditureUSD -2.0bnUSD -2.1bnUSD -2.2bnUSD -2.2bnUSD -2.3bn+3.7%
    Less increase in working capitalUSD 2.5bnUSD 2.6bnUSD 2.7bnUSD 2.8bnUSD 2.9bn-3.7%
    Free cashflow to firmUSD 15.3bnUSD 15.9bnUSD 16.5bnUSD 17.1bnUSD 17.7bn+3.7%
    Discount factor0.96110.88790.82020.75770.7000-
    Present valueUSD 14.7bnUSD 14.1bnUSD 13.5bnUSD 13.0bnUSD 12.4bn-4.2%
    Present Value Of The ForecastUSD 67.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.804Reported 0.708, pulled toward 1.0 (Blume)
    Cost of equity9.42%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 216.3bn77.0% of capital
    Total debtUSD 64.6bn23.0% of capital, book value as a proxy
    Tax rate13.5%Effective, capped at statutory
    WACC8.25%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 156.74

    66% of EV

    Forecast FCFF, final year
    USD 17.7bn
    Capex at depreciation, working capital in reinvestment
    USD 13.8bn
    Less reinvestment at g/ROIC (24.0% of NOPAT)
    USD -3.3bn
    Capitalised
    USD 10.5bn
    ROIC (reported)
    10.4%
    Terminal value, undiscounted
    USD 187.4bn
    Terminal value, discounted
    USD 131.2bn
    Enterprise value
    USD 198.9bn
    Less net debt
    USD 50.2bn
    Equity value
    USD 148.7bn

    Exit at 15.2x EBITDA

    Value per shareUSD 230.34

    75% of EV

    Terminal value, undiscounted
    USD 287.2bn
    Terminal value, discounted
    USD 201.0bn
    Enterprise value
    USD 268.7bn
    Less net debt
    USD 50.2bn
    Equity value
    USD 218.5bn

    Spread between methods: 38%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.25%224.80237.03252.39272.30299.26
    7.25%180.87187.14194.62203.74215.15
    8.25%149.82153.04156.74161.05166.16
    9.25%126.67128.21129.91131.81133.96
    10.25%108.72109.29109.87110.48111.11

    Outlined: this model. Green text: above today's price of 229.55. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.7%9.3%+5.6pp
    EBIT margin15.8%23.2%+7.4pp
    Discount rate8.2%6.6%-1.7pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.