IBM Is Undervalued And Provides Vast Upside In 2015: Algorithmic Analysis
Summary
- IBM has shifted to new software driven businesses, focusing on higher margins and value.
- The company’s fourth quarter earnings are not
as bad as they appear at first glance, and are part of the transition. - Strong partnerships with recognizable companies provide credibility and opportunities to IBM’s new business units.
- A DCF valuation and algorithmic analysis show that IBM is greatly undervalued in the long term.
The current technological landscape has changed rapidly in the last few years, severely affecting legacy IT companies such as International Business Machines Corp. (NYSE:IBM). The emergence of AS-a-Service represents a fundamentally disruptive series of impacts to the traditional IT and business services industry. Adapting to this new economic environment means IBM must transition the company, shifting the focus away from consulting, design, and implementation of one-off IT systems. Big Blue has recognized the changing environment and has made steps to do so.
Under Ginni Rometty, who became CEO in 2012, IBM has rapidly shifted its business portfolio, investing in what she calls strategic imperatives. These new businesses the company has earmarked for growth are Watson, cloud, security, services, systems, commerce, and analytics. At the same time, it has sold off businesses that generated several billion dollars in revenue but lost money or barely broke even in its attempt to focus on areas where it sees the most value.
