In a Framework Forum post the other day, Carey C. mentioned IBM as a possible bond replacement investment. Big Blue published its annual report for 2017 at the end of last week, so I updated the Framework Model to reflect the new actual data, and am posting it here for your review.
I will publish several more items on IBM this week and next as I read through the 10-K. In these posts, I will compare my past forecasts to actual values, detail my present valuation, and highlight an ATM bond replacement investment in the stock.
In the meantime, I will say that I already made one fairly large change to the model that affects the worst-case medium-term FCFO growth (the “Investment Stage” for those of you who have taken Framework training courses). Namely, my old worst-case value was average FCFO growth of 5% per year. I have reduced that to 2% per year. This change does take the Worst-Worst-Worst scenario’s fair value estimate down somewhat, but on balance, the company still appears to be undervalued.
For those who are interested, the graphs that I will be using to compare my forecast values to actual values over the last several years is included on the tab labeled “Forecast Updates.”
Stay tuned — we’ll have more on Big Blue soon.