Is There Now an Opportunity in Kyndryl After Recent Strategic Partnership News?

• Wondering if Kyndryl Holdings is a hidden value play or priced for perfection? You are definitely not alone. This stock is catching the eyes of investors looking for opportunities right now.
• The share price has seen notable moves lately, with a 3.7% gain in the last week. Even after some volatility, it is still down 28.4% year-to-date.
• Recent headlines have highlighted Kyndryl’s progress in expanding strategic partnerships and its ongoing transformation after spinning off from IBM. This has helped fuel both optimism and fresh scrutiny in the market. Analyst attention around these changes continues to shape expectations for what comes next.
• On our valuation checklist, Kyndryl has scored a 5 out of 6 for being undervalued. This is impressive, but what goes into that score? We break down a few standard valuation angles below. Stick around because we have an even more insightful way to look at value coming up at the end of this article.

Find out why Kyndryl Holdings's -26.7% return over the last year is lagging behind its peers.

Approach 1: Kyndryl Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting these amounts back to today’s dollars. This helps investors understand what the business may be worth, beyond short-term market sentiment.

For Kyndryl Holdings, the DCF model starts with a current Free Cash Flow of $249.4 Million. Looking ahead, analysts forecast substantial growth, with Free Cash Flows projected to reach $1.03 Billion by fiscal year 2028. While professional analyst estimates cover the next five years, Simply Wall St extends these projections further, forecasting Free Cash Flow up to 2035. These longer-term projections aim to capture Kyndryl’s potential as it continues its transformation following the IBM spinoff.

Based on this model, the estimated intrinsic value of Kyndryl’s shares is $73.85. According to these calculations, the stock trades at a 65.6% discount to its implied worth, suggesting it could be significantly undervalued at current prices.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Kyndryl Holdings is undervalued by 65.6%. Track this in your watchlist or portfolio, or discover 933 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Kyndryl Holdings.

Approach 2: Kyndryl Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a trusted metric for valuing profitable companies like Kyndryl Holdings because it directly compares a company’s market value to its earnings. For investors, this ratio provides a straightforward gauge of how much they are paying for each dollar of current earnings, making it easy to compare across similar firms and industries.

However, what constitutes a "normal" PE ratio depends heavily on growth forecasts and perceived risk. Higher growth potentials or lower risk typically justify a higher PE, while slower-growing or riskier businesses usually see a reduced multiple in the market.

Currently, Kyndryl trades at a PE ratio of 14.25x, which is below the IT industry average of 27.81x and also under the peer average of 15.80x. On the surface, this might suggest Kyndryl is undervalued compared to its sector and competitors. Simply Wall St’s Fair Ratio, a proprietary analysis considering growth prospects, margin strength, market cap, industry context, and company-specific risks, places Kyndryl’s fair PE at 43.69x. This nuanced approach moves beyond blunt comparisons and focuses on fundamental value drivers that are often overlooked by standard benchmarks.

With a current PE of 14.25x and a Fair Ratio of 43.69x, Kyndryl Holdings appears significantly undervalued based on its financial and strategic profile today.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1441 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Kyndryl Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple yet powerful tool that lets you tell a story—your story—about a company like Kyndryl Holdings by connecting your assumptions and perspectives on revenue growth, margins, and future prospects to a specific fair value estimate.

Unlike static models, Narratives capture your reasoning behind the numbers, linking a company's journey and market developments to a personalized financial forecast and an implied fair value. This transforms complex forecasts into straightforward insights aligned to your convictions and understanding of Kyndryl’s business.

Accessible and easy to create in the Simply Wall St Community, Narratives are used by millions of investors to clearly express their outlook, compare ideas, and make smarter decisions about whether to buy or sell by directly comparing their Narrative’s Fair Value to the current share price.

Narratives update dynamically as new news or earnings reports come in, ensuring your valuation stays in sync with the latest information. For instance, a bullish investor in the Community may see upside to $55 per share based on accelerating AI partnerships and expanding service margins, while a more cautious user values Kyndryl at $40, highlighting risks from legacy contract transitions and earnings volatility.

Do you think there's more to the story for Kyndryl Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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