Kyndryl Holdings, Inc. (KD): what the price assumes

Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/KD

Headline

Field	Value
Ticker	KD
Company	Kyndryl Holdings, Inc.
Current price	$13.80/sh
Composition	United States 25% / Japan 15% / Principal Markets 36% / Strategic Markets 24%

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin (value-band context)	1.1%
Operating margin today	2.7%
Margin compression (value-band)	-1.6pp
Implied growth	-3.5%
Multiple paid	17x operating income

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.4pp (computed at the 7% minimum rate; the CAPM rate 4.3% sits below it).

Reconcile: at the x-ray's 9.3% required return this reads ~12%/yr; the models below use their own rates.

How unusual the bet is: within-range

Reference	Value
vs own history	+0.72σ
cohort percentile (of 190 peers)	22
implied end-window share	0%

Valuation X-Ray

The price is supported by earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	1.26x	4	expensive
Earnings	1.00x	2	justifies
Relative	0.41x	5	justifies
Growth	0.76x	3	justifies

Families that justify the price: Earnings, Relative, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 3.3%); the inversion above states its own rate.

Per-Model Detail (n=14)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$35.29	0.39x	yes	FCF base $0.3B, growth 0% (input: historical growth), terminal g 0.5%, WACC 3.3%, 5yr projection
DCF Exit Multiple	Growth	$18.17	0.76x	yes	Exit EV/EBITDA: 7.4x / 9.4x / 11.4x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$33.92	0.41x	yes	P/E 27.48x (blended: static sector reference 35x + trailing (TTM) 16x), scenarios: 23.3x / 27.5x / 31.6x (bear / base = reference held flat / bull), EV/EBITDA 18.75x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$9.21	1.50x	yes	BV/sh $5.06, ROE (TTM) 16.8%, ke 9.3%
Two-Stage Excess Return	Asset	$12.26	1.13x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$8.95	1.54x	yes	Rev $15.1B, growth 0% (input: historical growth; tapered), Terminal P/S: 0.2x / 0.2x / 0.2x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair Value	Relative	$10.20	1.35x	yes	EPS $0.85, growth 1% (input: historical EPS growth), PEG=13.86 (Overvalued)
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	—	—	no	—
Residual Income	Asset	$12.35	1.12x	yes	BV $5.06 + 5yr PV of (ROE (TTM) 16.8% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham Number	Asset	$9.84	1.40x	yes	√(22.5 × EPS $0.85 × BVPS $5.06) — Graham's conservative floor
EV/EBITDA Relative	Relative	$64.97	0.21x	yes	EBITDA $0.76B × sector EV/EBITDA 25.0x
FCF Yield	Earnings	$0.01	1380.00x	yes	FCF $340.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median)
SBC-Adj FCF Yield	Earnings	$0.01	1380.00x	yes	SBC-adj FCF $0.26B (FCF $0.34B − SBC $0.08B) capitalized at Kₑ (excluded from median)
Ben Graham Formula	Earnings	$27.43	0.50x	yes	EPS $0.85 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	—	—	no	—
P/Sales Sector	Relative	$276.00	0.05x	yes	Revenue $15.09B × sector P/S 8.0x
PEG Fair Value	Relative	$31.87	0.43x	yes	EPS $0.85 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings Yield	Earnings	$9.19	1.50x	yes	EPS $0.85 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$3.3b
Net debt / NOPAT (after-tax)	10.00x
Net debt / operating income (pre-tax)	7.90x
Interest coverage	4.7x
Share count CAGR (dilution)	0.9%
Burning cash	no

Bullet Takeaways

• Kyndryl runs mission-critical IT infrastructure for large enterprises, the business IBM spun off, and the entire investment case is a margin turnaround: a low-margin, flat-revenue services business converting its contract mix toward higher-value, post-spin work.
• The defining risk is the legacy revenue base, where the company concedes competition "may decrease our revenue and place downward pressure on operating margins", and revenue has been flat to slightly declining even as margins improve.
• Watch the signings mix and margin path, with post-spin signings now 65% of revenue, targeting 80% by fiscal 2027, alongside a $400 million to $500 million cost-savings plan meant to lift margins toward high single digits.

Bull Case

Valuing an IT-services turnaround requires looking past today's revenue to the shape of the contract book, and Kyndryl's book is improving faster than its top line. The business is a low-margin infrastructure-services provider, but it inherited a portfolio of unprofitable legacy contracts from its IBM days and has been systematically replacing them. The proof is in the mix: post-spin signings now represent 65% of revenue, up from 50% a year earlier, and management targets 80% by fiscal 2027. As the old, low-margin contracts roll off and the new ones roll on, the company's margin expands even if revenue stays flat, which is exactly what is happening: full-year adjusted EBITDA rose to $2.7 billion and adjusted pretax income climbed 21% to $581 million on roughly flat revenue.

The growth inside the flat top line is in the highest-value areas. Kyndryl Consult revenue grew 18% to $3.5 billion, the advisory and transformation work the 10-K describes as deploying "our talent, thought leadership, proven practices, intellectual capital and partnership ecosystem", and hyperscaler-related revenue grew 59% to $1.9 billion as the company partners with the major cloud platforms rather than competing against them. These are the parts of the business that carry better margins and stickier customer relationships, and they are growing while the legacy base shrinks.

The valuation reflects skepticism that the methods do not share. The asset-value, earnings-power, peer-multiple, and growth methods all land at or above the current price, with peer multiples reading the stock as deeply discounted to comparable IT-services firms. Management is also taking out cost, with a $400 million to $500 million annualized savings plan targeted for fiscal 2028, which drops directly to the margin line. A business with an improving contract mix, double-digit growth in its best segments, a clear margin-expansion path, and a price below every valuation method is the kind of turnaround where the operational progress is running ahead of the share price.

Bear Case

The moat question is the one the bull case has to answer, and the honest answer is that Kyndryl's core has been eroding for years. Managed infrastructure services, running other companies' data centers and systems, is a market under secular pressure as enterprises shift workloads to public cloud and automate operations. Kyndryl acknowledges the competitive vulnerability directly, warning that if it cannot compete on factors like contracting flexibility and speed of execution, the result "may decrease our revenue and place downward pressure on operating margins". That is the structural reality beneath the turnaround story: the company is running up a down escalator, replacing declining legacy revenue fast enough to keep the top line flat, but flat is the best it has managed, with fiscal 2026 revenue of $15.1 billion down 3% in constant currency.

The balance sheet narrows the margin for error in that fight. Net debt of about $3.3 billion sits at roughly 6 times trailing operating income, with interest coverage near 6 times, heavy leverage for a business whose operating margin is only 3.6% and whose revenue is not growing. On top of that, the company flags a specific commitment overhang: it has determined that certain contractual commitments "may exceed the Company's needs over the next two to three years" and that it may have to record charges for excess commitments it cannot satisfy or amend. That is the kind of legacy obligation that can surprise a thin-margin turnaround with one-time costs.

The valuation, while cheap on the methods, carries the trap that comes with thin margins and high leverage. The price is supported across the board, so the bear is not an overvaluation argument; it is that the turnaround can stall. A 3.6% operating margin leaves almost no cushion, so any reacceleration of legacy revenue decline, any pricing concession to win signings, or any charge against those excess commitments compresses an already-slim profit. The price implies the business holds and modestly improves its margin, but in a business where competition is actively pushing margins down, holding the line is itself the bet, and a leveraged, low-margin company that misses on that bet has limited room to absorb it.

Valuation

Kyndryl is best understood as a margin-expansion bet priced as a value stock, and the methods agree it is cheap. The asset-value, earnings-power, peer-multiple, and growth families all land at or above the current price, with peer multiples reading the stock at a steep discount to comparable IT-services firms. The price is not betting on growth; the implied operating growth is minimal, consistent with a flat-revenue business. What the price is really worth depends on the margin, and that is where the analysis lives.

The central number is the gap between today's 3.6% operating margin and where the contract-mix shift can take it. Management's framework, converting the contract book to post-spin work and executing $400 million to $500 million of cost savings, targets margins expanding to high single digits. Doubling the operating margin from a low base, even on flat revenue, would transform the earnings, and that is the lever the cheap multiple is pricing skeptically. A reader should treat this as a situation where the valuation methods say the downside is limited (the price sits below the asset and earnings value) while the upside depends entirely on the margin path executing.

Solvency is the constraint that keeps the cheapness honest. Net debt around $3.3 billion at roughly 6 times operating income is meaningful leverage for a thin-margin business, and the excess-commitment overhang the company disclosed could produce charges. The genuine question the price raises is not whether Kyndryl is cheap on the assets; it is whether the margin expansion arrives fast enough, and the legacy decline slows enough, for the leverage to become an asset rather than a risk. The methods say the value is there; the execution is what realizes it.

Catalysts

The fiscal fourth-quarter report showed the turnaround tension clearly: margins up, revenue down, and the stock fell on the print. Kyndryl reported full-year fiscal 2026 revenue of $15.1 billion, flat on a reported basis and down 3% in constant currency, with fourth-quarter revenue down 5% in constant currency to $3.77 billion. The profitability metrics moved the other way: fourth-quarter adjusted EBITDA was $688 million at an 18.3% margin, full-year adjusted pretax income rose 21% to $581 million, and post-spin signings reached 65% of revenue.

The forward story is mix and cost. Kyndryl Consult grew 18% to $3.5 billion and hyperscaler-related revenue grew 59% to $1.9 billion, the higher-value segments management is leaning on, and total signings were $13.5 billion including 38 deals above $50 million. Management targets post-spin signings reaching 80% by fiscal 2027 to support high-single-digit margins, and approved workforce actions targeting $400 million to $500 million of annualized savings by fiscal 2028. The catalysts to track are the margin trajectory each quarter, whether revenue stabilizes as the contract mix matures, and the pace of Consult and hyperscaler growth offsetting the legacy decline.

Peer Cohorts (Per Segment, With Filing Citations)

Principal Markets / Strategic Markets (reported)

• CTSH (COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION)
• FY2025 10-K: , Capgemini, CGI, Deloitte Digital, DXC Technology, EPAM Systems, Genpact, HCL Technologies, IBM Consulting, Infosys Technologies, Tata Consultancy Services and Wipro. In addition, we compete with numerous smaller local companies in the various geographic markets in which we operate. For additional information, see…
• FY2025 10-K: …to innovate and co-create with our clients. In order to achieve this vision and support our clients, we are focusing on accelerating growth, becoming an employer of choice and simplifying our operations through modernization and an AI-enabled IT roadmap. In executing our strategy, we seek to drive organic growth…
• DXC (DXC Technology Co)
• FY2025 10-K: …variations do not materially affect our long-term performance, they may contribute to periodic fluctuations in revenue, expenses, and profitability. We continue to monitor these trends and adjust our operations as needed to optimize performance throughout the year. Competition The IT and professional services markets…
• FY2025 10-K: …is significantly different from the fair value estimate using the other approach, the Company reevaluates its assumptions used in the two models. Assumptions are modified as considered appropriate under the circumstances until the two models yield similar and reasonable results. The fair values determined by the…
• WIT (WIPRO LIMITED)
• (no filing in the citation store)
• EPAM (EPAM SYSTEMS, INC.)
• FY2025 10-K: …following each acquisition that was made in the fourth quarter of 2024, increased our revenues by 9.2% and fluctuations in foreign currency increased our revenues by 1.3% during the year ended December 31, 2025 as compared to the previous year. During the year ended December 31, 2025, we experienced a decrease in…
• FY2025 10-K: …reflect the accelerated rent expense for ROU assets, expected lease termination costs, or costs that will continue to be incurred under the facility lease without future economic benefit to the Company. 13. REVENUES Our revenues are sourced from multiple countries, which we assign into three geographic markets…
• IBM (INTERNATIONAL BUSINESS MACHINES CORP)
• FY2025 10-K: …include explicit financing terms. The company may include subcontractor services or third-party vendor equipment or software in certain arrangements. In these types of arrangements, revenue from sales of third-party vendor products or services is recorded net of costs when the company is acting as an agent between…
• FY2025 10-K: …measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company's own credit risk as observed in the credit default swap market. The company holds investments primarily in time deposits, certificates of deposit, and U.S.…
• SAIC (Science Applications International Corporation)
• FY2025 10-K: Sixth and Seventh Amendments, of which $ 4 million was recognized in interest expense and the remaining $ 2 million deferred and amortized to interest expense through the maturity date of the facility utilizing the effective interest rate method. The scheduled principal repayments for the Term Loan Facilities may be…
• FY2025 10-K: …its fair value, which is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements. Non-financial assets acquired and liabilities assumed in a business combination are measured at fair value using income, market and cost…
• LDOS (Leidos Holdings, Inc.)
• FY2025 10-K: …more than 120 countries, including people scanners, computed tomography carry-on baggage scanners, checked baggage scanners, and explosive trace detectors. We are also the primary supplier to CBP and other 4 Leidos Holdings, Inc. Annual Report Table of Contents PART I international customers of mobile, non-intrusive…
• FY2025 10-K: This proprietary information is protected in confidence as trade secrets, using non-disclosure and other definitive agreements. We selectively pursue opportunities to license or transfer our technologies to third parties. In connection with the performance of services and solutions, the U.S. government has certain…
• CACI (CACI International Inc)
• FY2025 10-K: …We provide Expertise and Technology to government customers. We believe that the total addressable market for our offerings is sufficient to support the Company's plans and is expected to continue to grow over the next several years. Approximately 75% of our revenue comes from defense-related customers, including…
• FY2025 10-K: …and speed of delivery. We believe that our customers' use of lowest price/technically acceptable (LPTA) procurements, which contributed to pricing pressures in past years, has moderated, though price still remains an important factor in procurements. We also continue to see protests of major contract awards and…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q4 FY2026 earnings release · Q4 FY2026 earnings call