Monday, April 19, 2010

IBM beats by 4cents, but shares are down after hours....(IBM)

Looks like the street wanted more...

IBM shares are down 1% after hours, despite earnings of 1.97 for the first quarter coming in 4cents ahead of expectations.

For the legions of people who cannot get their heads around the stock market's recent rise, look no further than IBM.  One year from now, a conservative valuation for IBM would be 14times trailing earnings.  I expect them to earn at least $11.50 this year (after today's news, consensus will be about $11.25).  So 14 times that earnings figure is 162, then add in nearly $11 per share in balance sheet cash, for a stock price target of $172.  32% upside, and that's pretty conservative in my opinion.

From a Free Cash Flow Yield (FCFY%) perspective, the shares are very cheap.  In 2009 IBM did $15billion in Free Cash Flow.  I expect that to be a little lower this year as CAPEX gets a boost, but they'll probably hit that level and higher in 2011.  Net of cash, their FCFY is 10%, an absolute steal for a company who borrows for two years at 1.4%....

At 10% of the DJIA index, IBM is yet another reason the rally has legs...

Copyright 2010 AlphaNinja

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