IBM: facing the bear with

0

As the bear market hurts technology in general, one company doing surprisingly well is International Business Machines (IBM, Financial). This value name in technology is actually up 5% while the Nasdaq 100 index is down 30% year-to-date. This is a remarkable outperformance over this period and speaks to IBM’s value characteristics.

IBM started 2022 with strong results. First-quarter revenue of $14.2 billion was nearly 6.7% higher than the year-ago quarter, or 11.7% after taking into account the Kyndryl divestiture (K.D., financial) in early November. Organic revenue increased by 8%. The company achieved a combination of 70% revenue in software and consulting and $20.8 billion in hybrid cloud revenue year-over-year, up 17% year-over-year, which is a key metric that the company tracks.

This advance was driven by strong gains in the software and consulting segments. The software group benefited from good demand for hybrid cloud applications with revenue up 15%, while consulting saw big gains of 17%, notably from the Red Hat business. Lower infrastructure division revenue hurt growth due to unfavorable product cycle dynamics in its zSystems (mainframe) division.

IBM outlined full-year 2022 expectations for 3.5% single-digit revenue growth from incremental sales (excluding Kyndryl) and free cash flow of $10 billion to $10.5 billion .

With a forward price-to-earnings ratio of 14.28 based on analyst estimates for 2022 earnings per share, the stock appears to be slightly overvalued according to the GF Value chart. However, the company pays a strong dividend yield of 4.7%, helping to offset the slight overvaluation.

1542928111904038912.png

The GF score is mediocre at 70 out of 100. The GuruFocus ranking system gives the company a solid ranking for momentum and profitability, but the GF value and financial strength are weak and growth is almost non-existent.

1542928225670340608.png

Below is a summary of selected metrics for IBM:

Teleprinter

Company

Running

Price

GF-score

Market capitalization

($B)

Financial

Strength

Profitability

Rank

GF value

Rank

Growth

Rank

Momentum

Rank

Predictability ranking

Evaluation

Rank

Quality

Rank

Financial Probability

Distress (%)

IBM

International Business Machines Corp.

$139.68

70

125.5

4

8

3

2

9

1/5

2

seven

0.01

Overall, I expect IBM’s software and consulting groups to continue to perform well as they benefit from strong demand for hybrid cloud solutions. Profitability should continue to increase due to a shift towards higher margin products and services. I expect solid revenue and earnings growth next year. Significant R&D investments are expected to pay off in the coming years as more customers expand their hybrid cloud and AI capabilities, which is a major focus area for IBM.

1542932987455283200.png

IBM is better positioned than most hardware and software companies to weather a macroeconomic downturn, as only 20% of IBM’s revenue is directly related to capital-intensive hardware and associated software, and more than half of its income is recurring.

Historically, IBM stocks have been negatively correlated to changes in the PMI – in other words, stocks tend to perform better when economic growth slows,

IBM this month launched a new generation of mainframe computers, IBM Z16, which is expected to drive growth in its hardware business over the next two years. The IBM Z16 system directly integrates AI accelerators as well as enhanced cybersecurity standards. Both of these features are becoming increasingly important for high-end government and commercial customers who don’t trust the big public cloud and want to keep on-premises systems for their most vital data. IBM’s hybrid cloud strategy is aimed at these customers.

IBM mainframes still power the majority of high volume transaction processing like credit cards, banking, insurance, etc. Most companies are loath to take the risk of migrating this critical task to the cloud and would rather upgrade their systems than risk catastrophic failure of the IT project. .

Share.

Comments are closed.