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IBM – Market expectations are for Uniform ROA to compress, and management may have concerns about their GBS business, revenue growth, and cash generation

May 20, 2021

  • International Business Machines Corporation (IBM:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.6x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may have concerns about their GBS business expertise, revenue growth, and their current cash generation profile
  • Specifically, management may lack confidence in their ability to sustain revenue growth and maintain their cash generation profile. In addition, they may be overstating their Global Business Services (GBS) expertise and the value proposition of their cloud-native applications. Furthermore, they may lack confidence in their ability to install the first on-premises IBM Q System One in Ohio, achieve net zero emissions by 2030, and sustain data platform strength