In my view, shares of International Business Machines Corporation (IBM) represent excellent value at these levels. I'll go through my reasoning by focusing on the (disappointing) financial history, along with a review of the market's assumptions about the stock. In my view, the company has been in the dog house for too long, especially in light of the potential growth drivers that it has going for it. In addition, we mustn't lose sight of the fact that the dividend is relatively high and has been growing for some time. Finally, the stock itself is priced quite pessimistically, and I think investors would be wise to take advantage of the fact that Mr. Market seems to be in a relatively depressed mood about this name.
Financial Snapshot
It's well known that IBM's revenue has been sluggish for some time. The best that we can say is that the rate of decline seems to be slowing somewhat. What has happened below the top line has me slightly more sanguine, though. Net income has also been choppy but far less choppy than revenue. In my view, net income is a more relevant number anyway as it's the foundation of all shareholder returns. In addition, free cash flow per share is up over the past five years because of a combination of increased free cash flow and aggressively reduced share count. Specifically, share count was reduced at a CAGR of 3.4% since 2012. Finally, on the back of this decreased share count, dividends per share have grown at an astonishing CAGR of about 10.5%. Given that dividends form a significant portion of investor returns (as opposed to "speculator returns" that are made up entirely of price changes), this is very relevant. Dividend increases broadcast management's commitment to treating shareholders well.
