Posts Tagged ‘IBM’

Death, Taxes, and Health Care Costs

October 25th, 2010

Ken Hackel, president of institutional equity manager, CT Capital, and author of Security Valuation and Risk Analysis (McGraw-Hill, 2010), warned about six months ago, of the impending pension liability. Now, as expected, firms with large defined benefit plans are fessing up to the power of the discount rate on the ultimate liability, which is now resulting in stepped-up contributions. Hackel estimates that for many firms, with 10-year Treasury bonds at 2.5%, a further 1% reduction in current yields could very well have the same impact as a 20% reduction in the estimated long-term investment return assumption. When Kenneth first started writing of the liability, a 1% reduction was roughly equivalent to a 15% decline.

» Read more: Death, Taxes, and Health Care Costs

IBM: A Case For Sam Palmisano firing Sam Palmisano

September 21st, 2010

In this article we look at evidence that strongly suggests IBM (IBM), despite being turned into a cash “machine,” has done so not through its own R&D efforts, but rather through massive cost cutting. And its strategy is errily similar to that of Hewlett-Packard (HPQ), even prior to today’s announcement of a $1.7 billion acquisition, its second large announced deal over the past week.

» Read more: IBM: A Case For Sam Palmisano firing Sam Palmisano

IBM – CEO Sam Palmisano Should Look at Facts First

September 15th, 2010

IBM (IBM) CEO Sam Palmisano should measure his words prior to speaking badly of others.

In an interview with the Wall Street Journal, Palmisano said that during former CEO Mark Hurd’s five-year tenure, Hewlett-Packard (HPQ) was hurt by sharp cuts in its R&D budget, and that the company was declining in relevance.
» Read more: IBM – CEO Sam Palmisano Should Look at Facts First

When Will Analysts Learn?

August 20th, 2010


Hewlett-Packard (HPQ: $39.72, $-1.0400,-2.55%) is down after Morgan Stanley (MS) says the company needs more aggressive buybacks to boost shares, Bloomberg reports. Morgan Stanley cut its price target to $56 from $62.

If this is a true representation as to how this analyst feels, it speaks poorly as to the state of current day security analysis.


Pension Facts: Why The Hit to Earnings and Cash Flow Is Upon Us

July 29th, 2010

Despite this past week’s 3.4% earnings-related stock rally, as of this writing, the S&P 500 Index is just near break-even for the year.

I bring up this unfortunate news as we are about to close out another month for the calendar year 2010, now 58% done.  By August end, the year will be two-thirds over, and so will vacation time.


Details Matter

July 22nd, 2010

This week, IBM, one of the world’s leading producers of Free Cash Flow (FCF), saw its stock tumble, when, among other things, it failed to produce the expected top line growth. What did investors really expect from a company soon to celebrate its 100th anniversary doing business in a near-recessionary climate? We’ll see how Apple (AAPL) is doing in 2076. Meanwhile, there were small details in IBM’s reporting that signaled what was to come.


IBM – Again, Pension Underfunding a Leading Indicator

July 19th, 2010

IBM, although a very strong credit, has been shrinking equity and buying back its shares (see our earlier articles: CFOs Making the Same Mistake and The Folly of Share buybacks).

It has also been underfunding its pension. When firms look to squeeze cash, the pension is an obvious target, and more often than not, disappointment, especially relative to expectations, is on the way. A couple of weeks ago we wrote IBM is underfunding its plans.

Please see our related articles on pensions and free cash flow implications of underfunding:

  1. Details Matter
  2. Pensions-Buyer Beware
  3. CNBC Strategy Session – Underfunded Pensions Earnings Bombshell
  4. CNBC’s Herb Greenberg – Underfunded Pensions are Red Flag for Investors
  5. The Next Shoe to Drop?
  6. The Other Shoe – Part 2
  7. With 3-, 5-, and 10-Year Stock Returns Negative: Why Are Pension Funds Assuming 8% Returns?

Disclosure: No positions

Kenneth S. Hackel, C.F.A.
CT Capital LLC

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For additional information on the implications of pension underfunding and its impact on free cash flow, cost of equity and return on invested capital, pre-order- “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.