Stock Analysis on Net
Stock Analysis on Net

International Business Machines Corp. (NYSE:IBM)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

International Business Machines Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.93%
01 FCFE0 14,449
1 FCFE1 12,901 = 14,449 × (1 + -10.71%) 11,324
2 FCFE2 12,098 = 12,901 × (1 + -6.23%) 9,321
3 FCFE3 11,887 = 12,098 × (1 + -1.74%) 8,039
4 FCFE4 12,213 = 11,887 × (1 + 2.74%) 7,249
5 FCFE5 13,095 = 12,213 × (1 + 7.22%) 6,822
5 Terminal value (TV5) 209,363 = 13,095 × (1 + 7.22%) ÷ (13.93% – 7.22%) 109,080
Intrinsic value of International Business Machines Corp. common stock 151,835
 
Intrinsic value of International Business Machines Corp. common stock (per share) $161.86
Current share price $246.28

Based on: 10-K (reporting date: 2025-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.54%
Expected rate of return on market portfolio2 E(RM) 17.37%
Systematic risk of International Business Machines Corp. common stock βIBM 0.73
 
Required rate of return on International Business Machines Corp. common stock3 rIBM 13.93%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rIBM = RF + βIBM [E(RM) – RF]
= 4.54% + 0.73 [17.37% – 4.54%]
= 13.93%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

International Business Machines Corp., PRAT model

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Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Cash dividends paid, common stock 6,255 6,147 6,040 5,948 5,869
Net income attributable to IBM 10,593 6,023 7,502 1,639 5,743
Revenue 67,535 62,753 61,860 60,530 57,350
Total assets 151,880 137,175 135,241 127,243 132,001
Total IBM stockholders’ equity 32,648 27,307 22,533 21,944 18,901
Financial Ratios
Retention rate1 0.41 -0.02 0.19 -2.63 -0.02
Profit margin2 15.69% 9.60% 12.13% 2.71% 10.01%
Asset turnover3 0.44 0.46 0.46 0.48 0.43
Financial leverage4 4.65 5.02 6.00 5.80 6.98
Averages
Retention rate -0.41
Profit margin 10.03%
Asset turnover 0.45
Financial leverage 5.69
 
FCFE growth rate (g)5 -10.71%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

2025 Calculations

1 Retention rate = (Net income attributable to IBM – Cash dividends paid, common stock) ÷ Net income attributable to IBM
= (10,593 – 6,255) ÷ 10,593
= 0.41

2 Profit margin = 100 × Net income attributable to IBM ÷ Revenue
= 100 × 10,593 ÷ 67,535
= 15.69%

3 Asset turnover = Revenue ÷ Total assets
= 67,535 ÷ 151,880
= 0.44

4 Financial leverage = Total assets ÷ Total IBM stockholders’ equity
= 151,880 ÷ 32,648
= 4.65

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.41 × 10.03% × 0.45 × 5.69
= -10.71%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (231,019 × 13.93% – 14,449) ÷ (231,019 + 14,449)
= 7.22%

where:
Equity market value0 = current market value of International Business Machines Corp. common stock (US$ in millions)
FCFE0 = the last year International Business Machines Corp. free cash flow to equity (US$ in millions)
r = required rate of return on International Business Machines Corp. common stock

FCFE growth rate (g) forecast

International Business Machines Corp., H-model

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Year Value gt
1 g1 -10.71%
2 g2 -6.23%
3 g3 -1.74%
4 g4 2.74%
5 and thereafter g5 7.22%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -10.71% + (7.22% – -10.71%) × (2 – 1) ÷ (5 – 1)
= -6.23%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -10.71% + (7.22% – -10.71%) × (3 – 1) ÷ (5 – 1)
= -1.74%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -10.71% + (7.22% – -10.71%) × (4 – 1) ÷ (5 – 1)
= 2.74%