International Business Machines (IBM) continues its long turn back to growth, focusing on high-value faster-growing business segments while embracing the future of technology with AI and hybrid cloud architecture via the Red Hat acquisition. Investors are ostensibly being appeased with the blended approach of M&A, realigning its business mix to current and future trends, maintaining its dividend payout and continuing to buy back shares until the Red Hat acquisition closes. IBM’s stock has been on an upward trend after investors decided to move past its initial displeasure of announcing its RedHat acquisition when shares were sold-off and traded down to ~$108. IBM's executive leadership has set the growth and value narrative, and investors are quickly realizing the value that Red Hat brings to the table while washing away fears that IBM overpaid for the $34 billion acquisition. From the $108 dip, IBM has been in a position of strength and has broken out past $140 after its recent Q1 2019 earnings. Long-term imperatives are beginning to bear fruit in emerging high-value segments that has fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. The Red Hat acquisition will augment its transition away from its dependency on legacy businesses to the future of hybrid cloud, artificial intelligence, and analytics. IBM presents a compelling investment opportunity with a 4.5% dividend yield, share buyback program and continuously acquiring companies to drive the business into the future.
Q1 2019 Earnings – Solid
IBM reported Q1 earnings that were solid, not great and investors seemed content. IBM reported EPS of $2.25 and revenue of $18.2 billion which was a -4.7% year-over-year decline while missing analysts’ targets. IBM slide the following day initially however quickly arrested that decline to rise above the $140 again. The company laid out its growth narrative and Red Hat acquisition catalysts. IBM's revenue was flat across most of its business segments; however, its Cloud revenue grew by 10%.
"In the first quarter, our cloud revenue growth accelerated, and we again grew in key, high-value areas in Cloud and Cognitive Software and in consulting,” "IBM’s investments in innovative technologies coupled with our industry expertise and our commitment to trust and security position us well to help clients move to chapter two of their digital reinvention."
Ginni Rometty, IBM chairman, president, and chief executive officer
IBM has slipped back into a revenue contraction in its last few quarters however I think there’s a lot to like moving forward. There’s a reassurance that the dividend is safe, stabilizing revenues and a lot of shots on goal for future growth especially with Red Hat coming into to fray and strategic imperatives becoming a larger segment of IBM’s overall revenue pie as this is a higher growth business (Figure 1). Continue reading "IBM Continues To Win Over Investors"