International Business Machines Corp. (IBM): What Does Billionaire Jim Simons’s Renaissance See?

Peers for International Business Machines Corp. (NYSE:IBM) include Accenture Plc (NYSE:ACN) and Hewlett-Packard Company (NYSE:HPQ). Hewlett-Packard has been moving away from hardware and towards software and services, as IBM has done; the stock currently trades at 7 times forward earnings estimates. While revenue and earnings both fell at double-digit rates in the first quarter of 2013 versus a year earlier, we’d keep an eye on Hewlett-Packard Company (NYSE:HPQ) for any signs of stabilization. Recent performance has been better at Accenture Plc (NYSE:ACN), with recent reports showing rises on both top and bottom lines. However, the market has already priced in some future growth at the company, with the stock carrying a trailing P/E of 19. Still, it’s possible that Accenture Plc (NYSE:ACN) is worth this premium to Hewlett-Packard Company (NYSE:HPQ) and International Business Machines Corp. (NYSE:IBM).

We can also compare IBM to Microsoft Corporation (NASDAQ:MSFT) and to Dell Inc. (NASDAQ:DELL). Each of these companies is valued at 11 times consensus earnings for the forward fiscal year, though there’s a complication in each case. Dell Inc. (NASDAQ:DELL) is facing competing bids for the company from Silver Lake Partners and from billionaire activist Carl Icahn. Currently, the stock is valued at $13.40; the Silver Lake offer is $13.65 per share, while Icahn is trying to line up enough financing to offer $14. While returns on this investment would be low in absolute terms, they might look more attractive at an annualized rate. In Microsoft Corporation (NASDAQ:MSFT)’s case, we’d be concerned that the low earnings multiple reflects a temporary boost to EPS from sales of Windows 8 and the new version of the Office software. As a result investors would have to model out the company’s financials for a few years beyond that point to better evaluate the company’s valuation.

International Business Machines Corp. (NYSE:IBM) seems that it may be about fairly valued: the earnings multiples are in line with slight increases in earnings per share going forward, and at least at this point the company seems to be able to deliver exactly that through repurchases. It wouldn’t be a buy, however, unless we were convinced that management could join its buybacks with improvements in the actual net income as well.

Disclosure: I own no shares of any stocks mentioned in this article.