shoeless Posted January 13, 2015 Share Posted January 13, 2015 I get a normalized $16B fcf (Owner Earnings). On a no-growth stock (revenue nearly unchanged for a decade), max I will pay is 10 x fcf, so values IBM at $160B, or right at $160 per share. Giving minimum 25% discount for margin of safety, my buy price would be $120. Have wondered for some time what Buffet sees in the stock, had assumed there was a growth story somewhere not obvious to me. They've been shifting to higher margin businesses so I'm not sure top-line growth is the best way to gauge growth. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted January 13, 2015 Share Posted January 13, 2015 Quote from: HWWProject on January 11, 2015, 05:52:03 PM I get a normalized $16B fcf (Owner Earnings). On a no-growth stock (revenue nearly unchanged for a decade), max I will pay is 10 x fcf, so values IBM at $160B, or right at $160 per share. Giving minimum 25% discount for margin of safety, my buy price would be $120. Have wondered for some time what Buffet sees in the stock, had assumed there was a growth story somewhere not obvious to me. They've been shifting to higher margin businesses so I'm not sure top-line growth is the best way to gauge growth. Yes, way too much focus on the top line. http://www.cnbc.com/id/102241195?__source=yahoo%7cfinance%7cheadline%7cheadline%7cstory&par=yahoo&doc=102241195 From The CFO: "This means we continuously move to higher value spaces in enterprise technology. We invest heavily where we see profitable opportunities and divest when we don't see an opportunity to create value. In the last decade, we have invested more than $130 billion in key growth areas through research and development, capital expenditures and acquisitions, sustaining 21 straight years of U.S. patent leadership. It has also allowed us to triple annual profits over the last decade, from $6 billion to $18 billion, while revenues have only increased by 1 percent on a compound basis. " Link to comment Share on other sites More sharing options...
Jurgis Posted January 13, 2015 Share Posted January 13, 2015 It has also allowed us to triple annual profits over the last decade, from $6 billion to $18 billion, while revenues have only increased by 1 percent on a compound basis. " And then the music stops. I am surprised Buffett didn't learn this lesson from KO: financial engineering is great for some time. And then you pay the piper. Which in case of KO was removing 2 CEOs by board backroom deals. Is this what Buffett will have to do with IBM? Link to comment Share on other sites More sharing options...
jawn619 Posted January 13, 2015 Share Posted January 13, 2015 It has also allowed us to triple annual profits over the last decade, from $6 billion to $18 billion, while revenues have only increased by 1 percent on a compound basis. " And then the music stops. I am surprised Buffett didn't learn this lesson from KO: financial engineering is great for some time. And then you pay the piper. Which in case of KO was removing 2 CEOs by board backroom deals. Is this what Buffett will have to do with IBM? You are implying that the "financial engineering" IBM is doing is inherently bad. I don't think there's anything shady about pursing higher margin areas of business while revenues grow at a slow pace. Link to comment Share on other sites More sharing options...
kevin4u2 Posted January 14, 2015 Share Posted January 14, 2015 I get a normalized $16B fcf (Owner Earnings). On a no-growth stock (revenue nearly unchanged for a decade), max I will pay is 10 x fcf, so values IBM at $160B, or right at $160 per share. Giving minimum 25% discount for margin of safety, my buy price would be $120. Have wondered for some time what Buffet sees in the stock, had assumed there was a growth story somewhere not obvious to me. I find comments like this quite funny. Many investors will pay ridiculous prices for oil and gas companies that have huge so called "growth", but when measured on a per share basis the growth is ZERO (sometimes negative). IBM on the other hand is criticized for no top line growth but revenue "per share" has risen 6.5% over the past 10 years. EPS has risen by an much greater amount. That is what Buffett sees in the company. Possession is not only 9/10ths of the law, it is also 9/10ths of capitalism. Link to comment Share on other sites More sharing options...
KCLarkin Posted January 14, 2015 Share Posted January 14, 2015 IBM moves to breathe new buzz into mainframes http://www.marketwatch.com/story/ibm-moves-to-breathe-new-buzz-into-mainframes-2015-01-13 http://www-03.ibm.com/press/us/en/pressrelease/45808.wss Link to comment Share on other sites More sharing options...
RadMan24 Posted January 14, 2015 Share Posted January 14, 2015 I get a normalized $16B fcf (Owner Earnings). On a no-growth stock (revenue nearly unchanged for a decade), max I will pay is 10 x fcf, so values IBM at $160B, or right at $160 per share. Giving minimum 25% discount for margin of safety, my buy price would be $120. Have wondered for some time what Buffet sees in the stock, had assumed there was a growth story somewhere not obvious to me. I find comments like this quite funny. Many investors will pay ridiculous prices for oil and gas companies that have huge so called "growth", but when measured on a per share basis the growth is ZERO (sometimes negative). IBM on the other hand is criticized for no top line growth but revenue "per share" has risen 6.5% over the past 10 years. EPS has risen by an much greater amount. That is what Buffett sees in the company. Possession is not only 9/10ths of the law, it is also 9/10ths of capitalism. Exactly. If investors misunderstand or don't fully recognize the potential benefits of shareholder capital allocations, then there may be an opportunity. Regardless, IBM will be a successful investment based on the earnings over the next couple of years. If earnings do not grow or hit a road block, then the investment will not be successful...as in greater returns than the market. Of course, moving the needle at such a large company is extremely tough to do. That's the risk with investing in mega cap companies. IBM is slimming down, buying back stock, and growing earnings through higher margin businesses. Remember, Wall Street hates uncertainty. With no guidance from IBM right now, it is kinda tough for "analysts" to recommend the stock. I'm long IBM, switched from Cisco. No matter how much stock Cisco buys back, stock options will continue to dilute existing shareholders. IBM is able to significantly reduce shares outstanding and as one mentioned above, grow revenue per share and EPS significantly because of this. Now with the uncertain future and earnings power of IBM, share prices are cheaper to purchase, but you have to be sure in your analysis they have a good probability of succeeding compared to the odds/price you pay today. Link to comment Share on other sites More sharing options...
orthopa Posted January 14, 2015 Share Posted January 14, 2015 I get a normalized $16B fcf (Owner Earnings). On a no-growth stock (revenue nearly unchanged for a decade), max I will pay is 10 x fcf, so values IBM at $160B, or right at $160 per share. Giving minimum 25% discount for margin of safety, my buy price would be $120. Have wondered for some time what Buffet sees in the stock, had assumed there was a growth story somewhere not obvious to me. I find comments like this quite funny. Many investors will pay ridiculous prices for oil and gas companies that have huge so called "growth", but when measured on a per share basis the growth is ZERO (sometimes negative). IBM on the other hand is criticized for no top line growth but revenue "per share" has risen 6.5% over the past 10 years. EPS has risen by an much greater amount. That is what Buffett sees in the company. Possession is not only 9/10ths of the law, it is also 9/10ths of capitalism. Could'nt have said it better myself. I could care less if revenue grows when free cash flow is steady and allows continued retirement of shares at reasonable to cheap multiples. Link to comment Share on other sites More sharing options...
Txvestor Posted January 14, 2015 Share Posted January 14, 2015 Growth for growth sake is stupid and the domain of poor management. Buffett alluded to this in his annual letter where he tacitly endorsed share buybacks done the way IBM is doing. He is also on record as saying that he hopes the shares of IBM stay low so managements buybacks can go further. If Mr Market wants to ignore the large cash flows, ownership concentration, investments in high margin growth opportunities, innovative culture(leading patent filings in the US), and the proven durability of the company through generations, sticky high margin core business, and instead obsess about the loss of low margin revenue, then that is Mr Market's problem. I initiated a position in the $160s and will add going lower. Reliable 10% returns are not easy to find in todays market. And 10% compounded internally in a reliable 10% cash flow generator is a beautiful thing over time. Any growth in Cloud, Big data, Watson etc is a kicker, but nit necessary to justify the investment in my assessment. Link to comment Share on other sites More sharing options...
innerscorecard Posted January 14, 2015 Share Posted January 14, 2015 Growth for growth sake is stupid and the domain of poor management. Buffett alluded to this in his annual letter where he tacitly endorsed share buybacks done the way IBM is doing. He is also on record as saying that he hopes the shares of IBM stay low so managements buybacks can go further. If Mr Market wants to ignore the large cash flows, ownership concentration, investments in high margin growth opportunities, innovative culture(leading patent filings in the US), and the proven durability of the company through generations, sticky high margin core business, and instead obsess about the loss of low margin revenue, then that is Mr Market's problem. I initiated a position in the $160s and will add going lower. Reliable 10% returns are not easy to find in todays market. And 10% compounded internally in a reliable 10% cash flow generator is a beautiful thing over time. Any growth in Cloud, Big data, Watson etc is a kicker. I have no position or opinion on IBM one way or another, but do you really think the number of patent filings is in any way an indicator of innovation? I suppose it's in some way an ok indicator of novelty, but that's far different from innovation, especially innovation that actually benefits shareholders. Link to comment Share on other sites More sharing options...
Txvestor Posted January 14, 2015 Share Posted January 14, 2015 Yes, i think it is a surrogate marker, and also one that over time transfers into a shareholder benefits, if not immediately. To me, it also speaks to a corporate culture that encourages thinking differently, and research and development. Do you know a better way to measure an innovative culture? Link to comment Share on other sites More sharing options...
DanielGMask Posted January 14, 2015 Share Posted January 14, 2015 Growth for growth sake is stupid and the domain of poor management. Buffett alluded to this in his annual letter where he tacitly endorsed share buybacks done the way IBM is doing. He is also on record as saying that he hopes the shares of IBM stay low so managements buybacks can go further. If Mr Market wants to ignore the large cash flows, ownership concentration, investments in high margin growth opportunities, innovative culture(leading patent filings in the US), and the proven durability of the company through generations, sticky high margin core business, and instead obsess about the loss of low margin revenue, then that is Mr Market's problem. I initiated a position in the $160s and will add going lower. Reliable 10% returns are not easy to find in todays market. And 10% compounded internally in a reliable 10% cash flow generator is a beautiful thing over time. Any growth in Cloud, Big data, Watson etc is a kicker. I have no position or opinion on IBM one way or another, but do you really think the number of patent filings is in any way an indicator of innovation? I suppose it's in some way an ok indicator of novelty, but that's far different from innovation, especially innovation that actually benefits shareholders. But of course! Why would a company register a patent if not for protecting the now patented rights from others, and why protecting something if is not innovative, different from what others are doing? IBM has been the patent leader in America for 22 years in a row, man, that's amazing. Google paid almost 10B more for Motorola than what it got when it later sold the company. Why? Because GOOG got to keep the patent portfolio that came with Motorola, a little over 17,000 patents, which is about what IBM patented between 2012 and 2014. IBM is cheap from a valuation point of view and is hard to argue that fact, it's also cheap from its historic PE, and also cheap from a 'yearly patents submitted' point of view. I'm a shareholder who will keep adding shares if the market thinks different. :-) Link to comment Share on other sites More sharing options...
CorpRaider Posted January 14, 2015 Share Posted January 14, 2015 Nortel's patents sold for a huge amount in its bankruptcy, I think GOOG was one of the main bidders. Lucent technologies had/has a lot of patents too. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted January 14, 2015 Share Posted January 14, 2015 Nortel's patents sold for a huge amount in its bankruptcy. Lucent technologies had/has a lot of patents too....just saying. HA! Yes, Yes let's spread the IBM potential bankruptcy rumor! I want to buy more even lower! Link to comment Share on other sites More sharing options...
CorpRaider Posted January 14, 2015 Share Posted January 14, 2015 I hadn't heard that one. I'm afraid I can't go in for the rumor and didn't mean to imply a filing is on the horizon (of course Lucent didn't file). Just providing a couple of examples where the very, very valuable patents didn't prevent the company from becoming a distressed seller and it was tempting to rely thereon as indicia of some value (of course there was some value it just wasn't sufficient and/or realized in a timely fashion). I suppose that is really no different from many other illiquid assets. Link to comment Share on other sites More sharing options...
boilermaker75 Posted January 14, 2015 Share Posted January 14, 2015 Yes, i think it is a surrogate marker, and also one that over time transfers into a shareholder benefits, if not immediately. To me, it also speaks to a corporate culture that encourages thinking differently, and research and development. Do you know a better way to measure an innovative culture? A measure of trade secrets would be better, but such a thing does not exist. A big purpose of IBM's patent portfolio is for ammunition. You can stifle small companies who don't have the resources to fight you with claims of infringements. Edit: Here is an example http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?pagewanted=all&_r=0 Link to comment Share on other sites More sharing options...
Txvestor Posted January 14, 2015 Share Posted January 14, 2015 The value of patents? Just read the breaking news about the approach to BBRY by Samsung, the main reason apparently is for access to their patents. Enuf said. Link to comment Share on other sites More sharing options...
UK Posted January 15, 2015 Share Posted January 15, 2015 http://www.businessweek.com/magazine/content/10_04/b4164051608050.htm No one beats IBM (IBM) on patents. For 17 years running, Big Blue has been granted more U.S. patents than any other applicant, raking in an unprecedented 4,914 in 2009. That tally is more than the number of patents granted last year to Microsoft (MSFT), Hewlett-Packard (HPQ), Oracle (ORCL), Apple (AAPL), Accenture (ACN), and Google (GOOG) combined. IBM's worldwide portfolio now covers more than 40,000 inventions for everything from microprocessors for video games to the Âerasable read-write CD. Nonetheless, a study conducted for Bloomberg BusinessWeek by Ocean Tomo, a Chicago intellectual property consulting firm, concludes that IBM's collection of U.S. patents over the past five years ranks only eighth in value. No. 1 is Microsoft, which ranked third, with 2,906 patents issued last year. Link to comment Share on other sites More sharing options...
innerscorecard Posted January 15, 2015 Share Posted January 15, 2015 I didn't say that patents have no value. They obviously have huge value. I was just wondering whether patents are in any way a useful proxy for innovation. The monetary value of a patent portfolio has, I think, not too much bearing on that specific question. Link to comment Share on other sites More sharing options...
DanielGMask Posted January 15, 2015 Share Posted January 15, 2015 http://www.businessweek.com/magazine/content/10_04/b4164051608050.htm No one beats IBM (IBM) on patents. For 17 years running, Big Blue has been granted more U.S. patents than any other applicant, raking in an unprecedented 4,914 in 2009. That tally is more than the number of patents granted last year to Microsoft (MSFT), Hewlett-Packard (HPQ), Oracle (ORCL), Apple (AAPL), Accenture (ACN), and Google (GOOG) combined. IBM's worldwide portfolio now covers more than 40,000 inventions for everything from microprocessors for video games to the Âerasable read-write CD. Nonetheless, a study conducted for Bloomberg BusinessWeek by Ocean Tomo, a Chicago intellectual property consulting firm, concludes that IBM's collection of U.S. patents over the past five years ranks only eighth in value. No. 1 is Microsoft, which ranked third, with 2,906 patents issued last year. As I mentioned earlier, 7,534 in 2014 and that's 22 years in a row. http://247wallst.com/special-report/2015/01/13/the-worlds-most-innovative-companies/ Link to comment Share on other sites More sharing options...
LowIQinvestor Posted January 20, 2015 Share Posted January 20, 2015 Pretty excited for earnings this evening. Should be entertaining to hear the talking heads after the bell. Link to comment Share on other sites More sharing options...
jawn619 Posted January 20, 2015 Share Posted January 20, 2015 Revenue of $24.1 Operating EPS 5.81 guidance for 2015 GAAP EPS $14.35 - $15.10 NON GAAP operating EPS $15.75 - $16.50 Link to comment Share on other sites More sharing options...
LowIQinvestor Posted January 20, 2015 Share Posted January 20, 2015 http://www.ibm.com/investor/att/pdf/4Q14-Earnings-Press-Release.pdf forecast earnings for 2015 of $15.75 to $16.50 Anyone else think that they are setting the bar pretty low with guidance? Also, IBM Says It Will Review Possible Dividend Increase. Link to comment Share on other sites More sharing options...
redskin Posted January 21, 2015 Share Posted January 21, 2015 No IBM posts today? Must be close to a bottom. Link to comment Share on other sites More sharing options...
obtuse_investor Posted January 21, 2015 Share Posted January 21, 2015 No IBM posts today? Must be close to a bottom. Funny. :) I haven't done a thorough analysis of the latest numbers yet. I just noticed something strange. The amount spent on buybacks was almost nil in Q4. This is unfortunate because their stock was at its lowest in Q4. On the other hand, it shows that they show discipline. It also shows that they ran out of buyback bullets before Q4 even started-- which tells me that they didn't expect the stock price to fall as much as it has. Otherwise you would have expected them to pace themselves throughout the year, and dollar cost average down. ... just some ramblings, because there were none today. :) Link to comment Share on other sites More sharing options...
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