Simple Investor Posted October 21, 2015 Share Posted October 21, 2015 KCLarkin I bought it years ago when I started to get into value investing. I remember reading the roadmap and I liked how my return was detailed by the executive team. Throw in Buffett’s backing and it seemed like a great investment. If Buffett didn’t own IBM I most likely wouldn’t have purchased it. I was and am riding his coat tails. I’ve been giving more thoughts to buybacks from companies and considering the total picture rather than just what the companies promote. So I wanted to add to the conversation. I’m not selling yet because my goal was to have a minimum 5 year time horizon and I think my edge is that I can withstand the pain for a long period of time (a few more reasons as well). Does that answer your question? Link to comment Share on other sites More sharing options...
Jurgis Posted October 21, 2015 Share Posted October 21, 2015 SimpleInvestor: buybacks always look bad if the share price of the company keeps dropping, since shares were bought at higher prices than now. This does not by itself mean that buybacks were wrong; it's very tough to buyback at the bottom - the same way it's tough for investors to buy at the bottom. Assuming one likes IBMs business plans and prospects (I don't), the buybacks were/are pretty rational. Link to comment Share on other sites More sharing options...
Simple Investor Posted October 21, 2015 Share Posted October 21, 2015 I'm not saying buybacks look bad. I'm just trying to take into account all aspects of the buybacks. How much for the dollar does the share count reduce. In this case about 73Billion for a 23% reduction. Or a 30% increase in ownership. I would think for long term investors the share price declining is the best situation for the buybacks? If the price kept rising they would have spent the same 73Billion with a smaller reduction in share count. I'm personally fine with the drop in share price. Just adding my two cents on buybacks. Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 21, 2015 Share Posted October 21, 2015 It's just running around in circles. Amount of buyback and share reduction is connected by the string of the price paid for the buyback! The lower the buyback price the faster the reduction in shares. It is virtually impossible to predict share prices years ahead. The one good thing we can say about IBM management is the buybacks have been carried out at a low P/E and a reasonable zone of value. I mean, it sure beats those companies that have massive dysfunction and buy back shares at 2-3-5x the current market price. Link to comment Share on other sites More sharing options...
Palantir Posted October 21, 2015 Share Posted October 21, 2015 So does anyone have an estimate for what FCF/s looks like after 10 years with no growth? Will FCF/s be 2x, 3x, or 4x compared to what it is now? Link to comment Share on other sites More sharing options...
scorpioncapital Posted October 21, 2015 Share Posted October 21, 2015 3.6% dividend 2-4% buyback 2% retained earnings --- Rate of return: 7.6 to 9.6% I don't think zero growth is reasonable. Let's assume the currently lethargic US GDP expansion of 2%. I think 10-12% is a decent guesstimate. Link to comment Share on other sites More sharing options...
Palantir Posted October 21, 2015 Share Posted October 21, 2015 So what wold the fcf/s be at the end? Link to comment Share on other sites More sharing options...
dwy000 Posted October 21, 2015 Share Posted October 21, 2015 So what wold the fcf/s be at the end? Doesn't that depend entirely upon the price of repurchase? If they buy back zero shares and just sit on the cash, with zero growth the FCF/S is unchanged. If they buy back shares the "S" will decline but it will be a function of the price paid for those shares. Link to comment Share on other sites More sharing options...
Palantir Posted October 21, 2015 Share Posted October 21, 2015 so taking their ytd fcf of 7B, annualized to 9.34B, yields a 6% fcf yield. I'd IBM doesn't grow and reinvests 100% of FCF at this price, should result in a 6% return assuming multiples are stable..... Link to comment Share on other sites More sharing options...
Palantir Posted October 21, 2015 Share Posted October 21, 2015 So what wold the fcf/s be at the end? Doesn't that depend entirely upon the price of repurchase? If they buy back zero shares and just sit on the cash, with zero growth the FCF/S is unchanged. If they buy back shares the "S" will decline but it will be a function of the price paid for those shares. Of course, but if your thesis depends heavily on repurchases, those are important inputs into your valuation. Link to comment Share on other sites More sharing options...
dwy000 Posted October 21, 2015 Share Posted October 21, 2015 So what wold the fcf/s be at the end? Doesn't that depend entirely upon the price of repurchase? If they buy back zero shares and just sit on the cash, with zero growth the FCF/S is unchanged. If they buy back shares the "S" will decline but it will be a function of the price paid for those shares. Isn't the thesis that, even with zero growth, if you use all FCF for share repurchase, if the stock price doesn't move then over 10 years the company would have bought back over 90% of their shares and FCF/S would have gone up 10x. I guess conversely, if you assume the FCF/S remains constant at say 9-10%, then the stock price should go up by the proportion of shares repurchased each year. For annualizing, usually 4Q is by far the strongest of the year so you probably need to bump that FCF yield up from 6%. Link to comment Share on other sites More sharing options...
Palantir Posted October 21, 2015 Share Posted October 21, 2015 Yep, I'm assuming the second scenario, which entails repurchases of share valued at a constant yield, whose price rises with fcf/s. Overall it doesn't seem like a heavy return proposition without organic growth happening-IMO you can't depend on return of capital to deliver value... Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 27, 2015 Share Posted October 27, 2015 $142/share: IBM Board Approves Quarterly Cash Dividend; Authorizes $4 Billion for Stock Repurchase http://www.businesswire.com/news/home/20151027006421/en/ "With the payment of the December 10 dividend, IBM will have paid consecutive quarterly dividends every year since 1916." Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted October 27, 2015 Share Posted October 27, 2015 $142/share: IBM Board Approves Quarterly Cash Dividend; Authorizes $4 Billion for Stock Repurchase http://www.businesswire.com/news/home/20151027006421/en/ "With the payment of the December 10 dividend, IBM will have paid consecutive quarterly dividends every year since 1916." That's close to 5% at these prices. Paired with the 3.5% dividend yield, shareholders are getting 8-8.5% just to wait. That's not bad if think they may be close to getting through the revenue declines. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 27, 2015 Share Posted October 27, 2015 Interesting, my buy order was just triggered @ $138 and change! Apparently the shorts got the SEC to look at their sales accounting. :-* Link to comment Share on other sites More sharing options...
KCLarkin Posted October 27, 2015 Share Posted October 27, 2015 Interesting, my buy order was just triggered @ $138 and change! Apparently the shorts got the SEC to look at their sales accounting. :-* Fun fact. The SEC obtained $4.2B in penalties last year in 807 enforcement actions. IBM's market cap is currently down $4.8B today. Link to comment Share on other sites More sharing options...
rb Posted October 27, 2015 Share Posted October 27, 2015 Fun fact. The SEC obtained $4.2B in penalties last year in 807 enforcement actions. IBM's market cap is currently down $4.8B today. I think investors are more worried that the revenue situation is worse than they think rather than the SEC fine. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 27, 2015 Share Posted October 27, 2015 Sell first, ask questions later. That buyback could come in handy right about now. This price won't last. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 27, 2015 Share Posted October 27, 2015 Fun fact. The SEC obtained $4.2B in penalties last year in 807 enforcement actions. IBM's market cap is currently down $4.8B today. I think investors are more worried that the revenue situation is worse than they think rather than the SEC fine. Sure. I guess it would be interesting to look at all the past SEC investigations into IBM and find out if any of them had a material impact. The last one went nowhere. Of all the reasons, to sell IBM, I think SEC investigations are the least of our worries. Link to comment Share on other sites More sharing options...
vinod1 Posted October 27, 2015 Share Posted October 27, 2015 Added to the position today. Hoping year end selling would take it down further in the next few weeks. Vinod Link to comment Share on other sites More sharing options...
ccplz Posted October 27, 2015 Share Posted October 27, 2015 What's the thesis? Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 29, 2015 Share Posted October 29, 2015 See slide 20: (Cash Flow from Ops up YTD) http://www.ibm.com/investor/att/pdf/IBM-3Q15-Earnings-Charts.pdf Link to comment Share on other sites More sharing options...
LowIQinvestor Posted November 4, 2015 Share Posted November 4, 2015 Innovation And Investment Over A Century with Ginni Rometty chairman, president and chief executive officer, IBM http://nytdealbookconference.com/gallery/dealbook-0/2015-videos/2049 Link to comment Share on other sites More sharing options...
Simple Investor Posted November 4, 2015 Share Posted November 4, 2015 Impressive. Lots of shareholder talk. Long term view. Trying not to make bad deals. Link to comment Share on other sites More sharing options...
Jurgis Posted November 5, 2015 Share Posted November 5, 2015 Innovation And Investment Over A Century with Ginni Rometty chairman, president and chief executive officer, IBM http://nytdealbookconference.com/gallery/dealbook-0/2015-videos/2049 My impression of Rometty remains similar to before. On one hand, she seems to be shareholder friendly through financial engineering: divestitures, buybacks, concentrating on high margin products. And she is right when she says that some of this is underappreciated. But then she goes off into business vision and it becomes a business suit buzzword stream: "platform" (repeated over 100 times I think), "cloud", "services", "analytics", etc. They bought Weather company, cause weather impacts like everything. :o And somehow Weather company is a platform for Internet of things. ::) And Watson is a platform too. 8) Look I really love Watson and I wish them a lot of success. But to think that IBM has a patent on machine learning systems or analytics is naive. Of course her job is to sell the "uniqueness" of IBMs solutions. ;) I am still not convinced that IBM is going to do well in the future. IMHO, it's going to be a fight and a slog. Though they are clearly in a stronger position than HP enterprise or Dell. Link to comment Share on other sites More sharing options...
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