Is IBM Really Overrated? A Deep Dive into DCF, Sensitivity, and Scenario Analysis
- Suhavi Arora
- 8 hours ago
- 2 min read
Disclaimer
This document has been prepared as part of a graduate portfolio project for academic and professional development purposes only. It does not constitute investment advice, a solicitation to buy or sell any securities, or an official financial analysis. All data, projections, and conclusions contained herein are derived from publicly available information - including Securities and Exchange Commission (SEC) filings (Form 10-K), Bloomberg terminal data, and Yahoo Finance - as of March 2025. The views and financial models presented are the sole work of the author and do not represent the views of any financial institution, advisory firm, or employer.
International Business Machines Corporation
NYSE: IBM · Enterprise Technology · GICS: IT Services & Consulting · December FY-End · Ref: 23 Jul 2025 · Val: 8 Aug 2025
MARKET PRICE $249.93 DCF TARGET $230.20 DOWNSIDE −7.90% | RECOMMENDATION SELL |
COMPANY PROFILE
Headquarters | Armonk, NY, USA |
Founded | 1911 |
Revenue FY 2024 | $ 62.75B |
Gross Margin | 56.7% |
FCF FY2024 | $12.7B |
Operating Cash Flow | $13.4B |
Shares Outstanding | 931.5M |
Net Debt | $41.0B |
KEY SEGMENTS (FY 2024)
Software | $27.1B |
Consulting | $ 20.0B |
Infrastructure | $13.0B |
Financing + Other | $2.6B |
DCF ASSUMPTIONS (2025-2029)
Driver | Range |
Sales Growth | 6.36% → 7.85% |
EBIT Margin | 13.0% → 14.75% |
Tax Rate | 21.0% (flat) |
D&A/Sales | 6.0% (flat) |
Net Capex/Sales | -2.45% → -1.20% |
Perpetual Growth (g) | 2.65% |
WACC BUILD-UP
Risk Free Rate (rf) | 4.37% |
Equity Beta | 0.80 |
Equity Risk Premium | 6.00% |
Cost of Equity (re) | 9.19% |
Cost of Debt (rd) | 4.50% |
Dent Weight | 20.3% |
WACC | 8.25% |
DCF VALUATION BRIDGE -$M
NPV of Projected FCFs (2025-2029) | $55,428M |
Terminal Value (Gordon Growth, g= 2.65%) | $294,732M |
Discounted Terminal Value | $198,324M |
Enterprise Value | $253,752M |
Less: Net Debt & Minority Interest | (-$41,112M) |
Add: Financial Investments | +$1,787M |
Equity Value | $214,427M |
Implied Price per Share → vs. $249.93 market | $230.20 SELL |
RELATIVE VALUATION - PEER MULTIPLES (SOURCE: YAHOO FINANCE)
COMPANY | P/E (Q2-25) | EV/EBITDA | P/Sales | EV/Rev | Signal |
IBM | 26.88× | 26.23× | 4.41× | 5.15× | OVERVALUED |
Peer Avg. | 20.66× | 17.38× | 6.05× | 6.32× | — |
vs. Peers | +30.1% | +51.0% | −27.1% | −18.5% | — |
Accenture | 23.04× | 17.18× | 2.99× | 2.94× | — |
Microsoft | 33.11× | 24.51× | 13.76× | 13.62× | — |
Oracle | 23.87× | 23.29× | 8.48× | 9.73× | — |
HPE | 8.63× | 5.22× | 0.71× | 0.82× | — |
Cisco | 14.64× | 16.68× | 4.29× | 4.50× | — |
SCENARIO ANALYSIS
BEARISH $196.23 −21.5% vs. market FCF Terminal $17,000M Growth Rate 2.00% WACC 9.00% REC: SELL | BASE CASE $230.20 −7.9% vs. market FCF Terminal $16,066M Growth Rate 2.65% WACC 8.25% REC: SELL | BULLISH $339.71 +35.9% vs. market FCF Terminal $19,500M Growth Rate 3.00% WACC 7.50% REC: BUY |
PROJECTED FCF ($M)
Year | Revenue | FCF |
2020A | $73,620 | $15,767 |
2021A | $57,350 | $11,121 |
2022A | $60,530 | $9,200 |
2023A | $61,860 | $13,007 |
2024A | $62,753 | $12,954 |
2025P | $66,744 | $12,610 |
2026P | $69,581 | $13,126 |
2027P | $73,373 | $13,884 |
2028P | $78,252 | $14,853 |
2029P | $84,395 | $16,066 |
SENSITIVITY- SHARE PRICE($)
WACC (rows) × Growth Rate g (cols)
WACC \ g | 2.15% | 2.65% | 3.15% |
7.75% | $267 | $293 | $323 |
8.00% | $253 | $276 | $304 |
8.25% | $241 | $230 * | $287 |
8.50% | $229 | $248 | $271 |
8.75% | $219 | $236 | $256 |
* Base case · Market = $249.93
METHODOLOGY
Primary valuation DCF (FCFF)
Cross-check Relative (4 multiples)
Stress-test Sensitivity + Scenario
Historical data FY2014 – FY2024
Forecast horizon FY2025 – FY2029
Data sources IBM ARs, Bloomberg
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