IBM - Embedded Expectations Analysis - 2022 02 17
International Business Machines Corporation (IBM) currently trades below corporate but above historical averages relative to Uniform earnings, with a 17.8x Uniform P/E (Fwd. V/E').At these levels, markets are pricing in expectations for Uniform ROA to fade, accompanied by 3% Uniform asset growth.
Meanwhile, analysts expect Uniform ROA to remain stable at 18% levels through 2022, accompanied by 11% Uniform asset shrinkage.
If sustained going forward, these levels would imply a stock price closer to $71, representing approximately 49% equity downside for the firm.
Moreover, the firm's most recent earnings call suggests management may have concerns about margins, growth opportunities, and profitability.
International Business Machines provides integrated solutions and products that utilize data, information technology, capability in industries and business processes. The company has five segments: Cloud and Cognitive Software, which provides a range of software offerings; Global Business Services, which provides consulting, systems integration, application management and business process outsourcing services; Global Technology Services, which provides project services, managed and outsourcing services, cloud-delivered services, and technical and IT support services; Systems, which provides technology and service; and Global Financing, which provides client financing, among others.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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