Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

IBM Not Getting Enough Credit; Buy on a Dip

Technology bellwether IBM (IBM) isn't getting the respect it deserves, so any pullback under $200 would represent a tremendous buying opportunity.

IBM is worth a closer look for a variety of reasons, not the least of which is the fact that the company has been on a considerable tear all year and has logged what seems like it amounts to a new 52 week high each week.

The company's recent performance interests me quite a bit because it is hard to imagine that just a few years ago the company known as "Big Blue" was teetering on the verge of irrelevance. IBM languished under a stifling corporate culture and a crackpot attempt to take over the consumer and business technology hardware and software market.

Related Links

Today, IBM is once again a beacon of power and one that along with Apple (AAPL) has led technology resurgence that two quarters ago seemed unimaginable.

Going into IBM's earnings announcement on Tuesday, I was eager to see if it would be able to build on the momentum that started at the beginning of the year.

The Quarter That Was

For the January-March period, IBM reported earnings of $3.07 billion or $2.61 per share - representing an increase of more than 7%. Excluding special items such as acquisition costs and pension-related expenses, the company earned $2.78 per share, well above the $2.66 per share that analysts were expecting. That was the positive side of the report. On the not-so-good side, the company reported flat revenue of $24.7 billion - lower than the $24.82 billion that analysts had been expecting.

The company attributed the decline in part to hardware and financing segments that experienced some declines even as its software and services revenue saw an increase. This was not a surprise, as the company had demonstrated a considerable amount of focus on its services business due to their higher profit margins.

Overall the report was good but I can't help but to describe what I observed as a market overreaction to the company's miss on revenue - as narrow as it was. That said, it seemed it was enough to slow the momentum of the stock as investors took it as a sign of weakness. The stock fell approximately 2% in after-hours trading to $203.45 after having gained $4.73 to close regular trading at just over $207.

Moving Forward

As far as the outlook is concerned, the company says it now expects to earn $15 per share on adjusted earnings. This is an increase from its previous guidance of $14.85 and tops analyst estimates of $14.93 per share.

What stood out during the call was that the company said by the end of 2015 it expects to earn $20 per share - a statement that I thought was pretty impressive considering that companies rarely (if ever) project out that far. If that was not a statement of confidence, I don't know what is.

It is now apparent is that a new IBM has emerged, one that has proven to be a consistent success in the face of stiff competition - many of which includes its race towards the cloud against names such as Oracle (ORCL), SAP (SAP), and HP (HPQ).

As usual it seems that IBM's performance has generated very little fanfare. Regardless, it begs the question, can IBM keep this up - "this" being the upward trajectory that its stock has enjoyed for most of the year. The company has projected better than decent long-term sales growth, but the steps that it has taken in software and services gives some hope that the company can maintain a slightly higher forward growth rate - likely in the 4% to 5% range.

Bottom Line

The narrow revenue miss notwithstanding, there is no doubt that IBM will bounce back as the company still enjoys a reputation for excellence.

The fact is, IBM still has resources that very few companies can match and any notion that it will not be able to maintain its growth projections due to increased competition is absurd.

Investors have to understand that sometimes competition only comes down to a question of who can assemble the most R&D dollars. In that area I don't know too many companies that can compete with IBM.

< Previous
  • 1
Next >
Featured Videos