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IBM’s Value Proposition in the US Software Space

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IBM’s scale in the systems software space

Now that we’ve discussed IBM’s (IBM) plans and initiatives to report growth in 2017, let’s look at its value proposition among other software companies in the United States. As of January 7, 2017, Microsoft (MSFT) was the largest software player by market capitalization globally, followed by Oracle (ORCL). IBM was third in market capitalization. SAP (SAP) is also a leading player in this space.

Earlier in this series, we saw that these players tried to enhance and strengthen their positions in AI (artificial intelligence), machine learning, and IoT (Internet of Things) through acquisitions in 2016. As these technologies are expected to be more prominent in the next computing cycle, their initiatives are likely to grow in 2017.

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Enterprise value multiples

IBM was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~9.6x on January 7, 2017. This metric was lower than Microsoft’s multiple of ~10.7x but higher than Oracle’s multiple of ~8.9x. SAP’s metric was 13.8x.

Dividend yields

IBM’s forward annual dividend yield was ~3.3% as of January 7, 2017, higher than Microsoft’s and Oracle’s forward dividend yields of ~2.5% and ~1.6%, respectively. SAP’s forward yield was 1.5%. In the next and final part of our series, we’ll look at analysts’ recommendations for IBM.

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