IBM (NYSE:IBM) is an innovator and has led the U.S. in patents granted for over a decade. However, the stock has been painful to own since 2000 and is currently trading at 13.5 times projected 2006 earnings of $5.86 per share. That's a slight discount to its 30-year average forward P/E multiple of 14, and it's also a discount to the forward multiple of the S&P 500. Considering the rosy outlook for IT spending and the strength of IBM's brand, it's starting to look like a bargain.

To get a better of idea of the company's value, I did a back-of-the-envelope valuation based on the sum of its parts. IBM's four business units are global services, systems and technology, software, and global finance.

First, global services (IGS) is the company's largest business unit. It's the world's largest technology services provider, including system integration, consulting, and outsourcing. Based on reported 2005 revenue of $47 billion, pre-tax income margin of 9%, and an estimated tax rate of 33%, global services earned approximately $2.9 billion last year. IBM's biggest competitor in this space is Accenture (NYSE:ACN). Accenture trades at a forward multiple of 16, and IGS should trade in a similar range. Assuming 3% earnings growth, that would put the value of global services at $47 billion.

Second, systems and technology sells servers, storage devices, and printers. Based on reported 2005 revenue of $21 billion, a pre-tax margin of 9.6%, and an estimated tax rate of 33%, systems and technology earned $1.4 billion last year (this excludes the PC division, which was sold to Lenovo). The most similar company in the space is Hewlett-Packard (NYSE:HPQ), which trades at 14 times forward earnings. Assuming 3% earnings growth and a similar multiple to Hewlett-Packard, systems and technology should be worth approximately $19.5 billion.

Third, the software unit produces operating systems, middleware, and infrastructure software for businesses. Based on reported 2005 revenue of $15.7 billion, a pre-tax margin of 27%, and an estimated tax rate of 33%, software earned $2.8 billion last year. Similar companies SAP (NYSE:SAP) and BEA Systems (NASDAQ:BEAS) trade at 23 and 24 times forward earnings. Assuming 3% earnings growth and a similar multiple, IBM software should be worth approximately $67 billion.

Finally, global finance earned $1 billion in 2005. The average forward multiple for the credit services industry is 18. Assuming 3% earnings growth, global finance is worth approximately $18.5 billion.

Based on the sum of global services ($47 billion), systems and technology ($19.5 billion), software ($67 billion), and global finance ($18.5 billion), IBM is worth $152 billion. That is $98 per share based on the 1.55 billion shares outstanding. Also, the assumption of 3% EPS growth is actually lower than analyst estimates of mid- to high-single digits. If the company could sustain 8% EPS growth over the next five years, the value would be significantly higher than $100 per share.

At the current price of $80 per share, IBM is trading at 15.5 times trailing earnings. For a blue chip, that's a great deal. Of course, there are concerns over pension liability and growth potential, but with the stock trading at an approximately 20% discount relative to competing companies, its valuation is cheap enough to mitigate those concerns.

Accenture is a Motley Fool Inside Value recommendation.

Fool contributor Brendan Mathews welcomes your feedback. He owns shares of Accenture. The Fool has a disclosure policy.