Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Saturday 31 July 2010
Enterprise Value
Comparator analysis (sometimes called comparison company analysis) is a relative valuation approach. For $IBM we looked at four peer companies – Accenture ($ACN), HP ($HPQ), Microsoft ($MSFT) and Oracle ($ORCL). We calculated enterprise values – market capitalisation plus net debt (long-term borrowings less cash). Then we measured a range of metrics against the enterprise value for $IBM and the peer set.
We have used the last financial year (LFY) as the base set of metrics. $IBM has not yet released the 2008 LFY profitability (EBIT and EBITDA) and free cash flow results. For this analysis we have used the 2008 revenue numbers with the 2007 profitability and free cash flow margins. The highlighted column links our DCF valuation to the current market valuation.
$IBM is currently trading in the middle to the upper-end of the valuation metrics of the peer group. Our DCF valuation places a value on $IBM well above where the market is currently valuing the company and the peer group. Reviewing our assumptions we remain comfortable with our valuation. Using the DCF valuation approach we believe that $IBM is trading at a discount to intrinsic value. The market is definitely voting negative – but in the long-run we believe $IBM represents value at current prices.
http://blog.valuecruncher.com/2009/01/running-the-numbers-ibm-ibm-still-undervalued-after-strong-result/
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