You're a recent poster on SI.
The 5-year Plan when Sam Palmisano was CEO was to reach $20 EPS by 2015. During that timeframe, Todd or Ted got Berkshire Hathaway started in IBM, maybe around $129 or perhaps a little below $165.
ibtimes.com
The investment has been a disaster, with the stock holding up only because Berkshire kept buying more shares.
The balance sheet has been a disaster, but on closer look, it's a finance company because IBM still has a good credit rating. So they earn 7% to 14% on their receivables.
Benjamin Graham would never have bought a company with such high negative working capital. Buffett got sucked in by the guys he was hoping to replace him.
I'm surprised Bill Gates didn't push back, and that shows he is not independent.
Look at their quarterly presentations, where they strip out the debt and those financing revenues.
Meanwhile, IBM has used 80% of its free cash flow to buy back shares. That looks a lot like how Dell bought back its shares (and later went private for less than the average price paid for the shares they retired).
Buffett made the same mistake with IBM that he made with Hillary Clinton. He forgot about competence (or at least to monitor it, and competitive threats), and went with affirmative action.
The best thing for the United States this election cycle was for Donald Trump to win, and the best thing for IBM is for the board to groom a replacement for Ginni Rometty.
His slowness to reduce the position indicates he was using IBM to groom Todd and Ted to replace him as manager of the Berkshire Hathaway investments.
The main reason the stock did well since November 8 is the prospect for lower corporate taxes, so Berkshire would have balance sheet improvement, because the tax liability for unrealized gains has been accrued at 35%. |
