Generating Higher Value at IBM (A): EPS Forecasting Model

Benjamin C. Esty; Scott   Mayfield

Supplement | HBS Case Collection | June 2015

Generating Higher Value at IBM (A): EPS Forecasting Model

Abstract

This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004-2013, during which IBM returned more than $140B to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano created, announced, and then regularly updated a long-term financial "roadmap" as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the "2015 EPS roadmap".
The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.

Keywords: dividends; Share Repurchases; Earnings Guidance; financial statement analysis; Financial ratios; Payout policy; Earnings per Share (EPS); Earnings Management; Change Management; Leadership; Transformation; Financial Strategy;

Language: English

Format: Electronic

Purchase

Citation:

Esty, Benjamin C., and Scott Mayfield. "Generating Higher Value at IBM (A): EPS Forecasting Model." Harvard Business School Spreadsheet Supplement 215-711, June 2015.

Peloton Interactive, a well-known venture-capital-backed unicorn in the connected fitness space, recently had gone public with a market capitalization of over $8.0 billion. However, in the weeks following its public debut, Peloton’s stock price had fallen by over 25%. Taylor Knox, an enthusiastic Peloton subscriber, believed that connected fitness products were the future of exercise and he had been excited about the prospect of investing in Peloton. However, given the market’s reaction to the company’s IPO, Knox understood the need to determine the fundamental value of Peloton’s shares, as well as to identify and to evaluate the key risks associated with its innovative business model. Reflecting on the situation, Knox wondered if this was an opportunity to invest in his favorite activity at a discount. Or, did market investors understand something he didn’t?

Peloton Interactive, a well-known unicorn in the connected fitness space, had gone public with a market capitalization of over $8.0 billion. In the weeks following its public debut, Peloton’s stock price fell by over 25%. Taylor Knox, a stock analyst and enthusiastic Peloton subscriber, must determine the fundamental value of Peloton’s shares, as well as identify and evaluate the key risks associated with its innovative business model.

Case | HBS Case Collection | April 2020 (Revised May 2020)

TransDigm in 2017: The Beginning of the End or the End of the Beginning?

Benjamin C. Esty and Daniel Fisher

TransDigm was a highly acquisitive company that manufactured a wide range of highly engineered aerospace parts for both military and commercial customers. Over the ten years ending in 2016, its stock price had increase ten times, and both EBITDA and revenues had grown at compound annual rates in excess of 20%. But in early 2017, investors, customers, and government officials began to question the implementation, sustainability, and ethics of the firm’s unique value creation strategy. That strategy consisted of three parts: value-based pricing, cost reductions, and new product development. In the short term, CEO Nick Howley had to decide whether to respond to the barrage of criticism; in the longer term, he had to decide whether to change the firm’s highly successful strategy.

Keywords: value capturing; Pricing strategy; supplier power; buyer power; Porter's Five Forces; bargaining power; monopoly; aerospace; acquisition strategy; value drivers; ethical behavior; regulation; growth strategy; Business ethics; defense; procurement; sustainability; Value-Based Business Strategy; Acquisition; Ethics; Private Equity; Financial Strategy; Growth Management; Performance Evaluation; Business Strategy; Competitive Strategy; Horizontal Integration; Value Creation; Competitive Advantage; Aerospace Industry; Air Transportation Industry; United States;

Citation:

Esty, Benjamin C., and Daniel Fisher. "TransDigm in 2017: The Beginning of the End or the End of the Beginning?" Harvard Business School Case 720-422, April 2020. (Revised May 2020.) View Details

Cite View Details Educators Purchase

Faculty & Research

Generating Higher Value at IBM (A): EPS Forecasting Model

Abstract

Citation:

About the Authors

More from these Authors