The Iconoclast Investor

International Business Machines (IBM) is a company that is transforming itself from a slow-growing company into a market leader with faster revenue and earnings growth.

IBM is the world’s largest and most recognized technology company.  The company makes and sells computer hardware equipment, application and system software, and offers consulting and outsourcing services.  Revenues will top $100 billion in 2008, yet despite IBM’s size, its earnings are expected to grow at a 15% clip during the next three to five years.  Top-notch research–IBM garnered more new patents than any other company in 2007–and overseas expansion will fuel future growth.

IBM has evolved from being a computer hardware maker to a systems, services and software company.  Management is now focused on providing products and services to help corporations in the U.S. and abroad to cut costs, increase security and manage risk.  Recent new product and service launches will help provide rapid growth during the next several quarters.  IBM’s services backlog is a huge $120 billion.  Long-term service contracts will ensure stable growth despite economic uncertainty.  Earnings per share growth of 15% is a reasonable expectation during the next three to five years.

IBM shares sell at a bargain 10.3 times next 12-month EPS.  The dividend was recently increased for the 13th straight year and now provides a 2.2% yield.  I fully expect IBM shares to advance to our Minimum Sell Price target within one to three years.