Surhat

Healthy and General

Bear of the Day: International Business Machines (IBM)

3 min read

International Business Machines (IBM) is a Zacks Rank #5 (Strong Sell) provides advanced information technology solutions, computer systems, quantum computing and super computing solutions, enterprise software, storage systems and microelectronics.

“Big Blue” has struggled over the last decade, so they have tried to adjust and pivot to the cloud. Their acquisition of Red Hat helped this idea, but a recent earnings report has disappointed investors.

The stock is now trending lower and looks like it might challenge 2022 lows.  

About the Company

IBM is headquartered in Armonk, New York. The company was incorporated in 1911 and employs over 280,000 people.

The company operates through four business segments: Software, Consulting, Infrastructure, and Financing.

IBM is valued at $114 billion and has a Forward PE of 13. The stock holds a Zacks Style Score of “C” in Value, “B” in Growth and “B” in Momentum. The stock pays a dividend of 5%.

Q2 Earnings

The company reported EPS last week, seeing Q2 at $2.31 v the $2.29 expected. Revenues came in at $15.5B v the $15.1B. IBM affirmed FY22 at the high end of its mid-single digit model, but narrowed the FY22 FCF to $10B from $10-10.5B.

Margins were down year over year, from 55.2% to 53.4%. While software, consulting and infrastructure revenues were all higher year over year.

Here are some comments from CEO Arvind Krishna:

“In the quarter we delivered good revenue performance with balanced growth across our geographies, driven by client demand for our hybrid cloud and AI offerings. The IBM team executed our strategy well.”

Estimates

Analyst are already starting to drop estimates as a result of the earnings report.

After stabilizing over the last few months, estimate have fallen off a cliff over the last 7 days. For the current quarter, estimates have fallen from $2.57 to 2.07, or 20%.

Things look to improve next quarter, but we see estimates tracking lower again for next year. Over the last 60 days, numbers have been lowered from $10.81 to $10.26, or 5%.

Technical Take

The stock was holding up well before earnings, as it was seeing support at the 50-day moving average. But IBM is now trading under all its moving averages after the earnings report, slicing right through the 200-day at $130.50.

The lows of the year are just under $120. These should be taken out if the momentum continues and the bears could possibly target the 2021 lows around $113.

Looking at Fibonacci levels, a 61.8% retracement drawn from May lows to June highs was holding at $133. However, this support was broken and bears should target the 161.8% extension at $113. This lines up with that 2021 low support.

In Summary

While big blue had some positive aspects to the quarter, investors were disappointed overall. The stock fell over 8% after earnings and looks like it could take out 2022 lows on any market weakness.

The stock pays a nice dividend, but with cash flow being taken down, investors might start to lose faith in that payout

For now, a better option in the sector might be Agilysys (AGYS). The stock is a Zacks Rank #2 (Buy) and has held up relatively well over the last six months.     

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Click to get this free report

International Business Machines Corporation (IBM): Free Stock Analysis Report

Agilysys, Inc. (AGYS): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.