Kyndryl Holdings (NYSE:KD): Evaluating Valuation After Announcing Strategic AI Partnership With VML

If you have been watching Kyndryl Holdings (NYSE:KD) lately, the recent excitement might have caught your eye. The company just announced a high-profile partnership with VML, aiming to shake up how businesses use artificial intelligence and data to engage their customers. By combining their expertise, the two are promising to help clients across industries reimagine everything from personalized banking to omnichannel retail, sparking some real buzz in the tech space.

This move lands after a year in which Kyndryl Holdings has seen some wide price swings, with momentum picking up in the past month despite a rocky ride earlier. The numbers tell the story: shares are up 38% over the past 12 months and have more than doubled over the past three years, although this recent bump arrived after a period of slower growth. While investors are drawn to the new partnership’s potential, it is clear the market is still sorting out just how much of that promise is reflected in today’s price.

With all this change in the air, is Kyndryl Holdings a smart buy now, or has the market already factored in the next wave of growth?

Most Popular Narrative: 30.9% Undervalued

According to the most widely followed narrative, Kyndryl Holdings is considered significantly undervalued relative to its projected future performance. The consensus analyst view suggests the market may not be fully pricing in the company's growth initiatives and anticipated improvements in profitability.

Kyndryl is capitalizing on increased enterprise demand for digital transformation and IT modernization, particularly through its rapidly growing Kyndryl Consult segment and partnerships with leading technology providers. This expansion is driving double-digit revenue growth in consulting and positioning the company for sustained top-line improvement. The accelerating adoption of hybrid and multi-cloud environments is fueling demand for Kyndryl's advanced integration and management services. This trend is evidenced by a 44% year-over-year increase in signings and substantial growth in hyperscaler-related revenues, which supports ongoing revenue expansion and a higher recurring revenue base.

Curious how this narrative justifies such a hefty upside? It all comes down to a trio of key assumptions that challenge the status quo. Ready to discover the bold growth targets, the future margin ambitions, and the value metric underpinning this bullish analyst target? Dive deeper to see how these projections combine to arrive at that eye-catching fair value.

Result: Fair Value of $46.25 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ongoing revenue erosion from legacy contracts and unpredictable timing of large account transitions could quickly challenge these positive projections.

Find out about the key risks to this Kyndryl Holdings narrative.

Another View: What Does the DCF Model Say?

While analysts take a bullish stance using future earnings projections, our SWS DCF model approaches Kyndryl Holdings from a different angle. This model also points to the stock being undervalued, but does its method tell the same story or raise new questions?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Kyndryl Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Kyndryl Holdings Narrative

If you think there might be more to the story or want to dive deeper into the numbers yourself, it is easy to put your own spin on the data and draft a custom narrative in just a few minutes. Do it your way.

A great starting point for your Kyndryl Holdings research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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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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