Summary
- Q4 earnings and 2019 guidance give the impression of a stable and flat business.
- The growing businesses become more and more important.
- Taking into account my growth estimations beyond 2019, I estimate IBM is undervalued.
IBM (IBM) released the Q4 earnings and the 2019 guidance. From a high-level perspective, the story is simple. With an expected 2019 EPS at about $13.9 and a flattish global business, IBM can be valued at $166.8/share, assuming a multiple of 12x the EPS.
But, with IBM, flat revenue means growing segments offset the decline of the legacy businesses. And the company is now at an inflection point as "Strategic Imperatives" revenue represented 50% of the total revenue during 2018.
With the operating leverage and the increasing part of the growth businesses, I expect the bottom line to amplify the evolution of the top line beyond 2019.
Before valuing the company based on my estimation of the growth profile, let's analyze the evolution of the business with the latest results.
