Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

IBM Q4 Earnings Preview: Cloud Growth In Focus After Legacy Unit Spinoff

By Investing.com (Haris Anwar/Investing.com)Stock MarketsJan 24, 2022 06:53
uk.investing.com/analysis/ibm-q4-earnings-preview-cloud-growth-in-focus-after-legacy-unit-spinoff-200508213
IBM Q4 Earnings Preview: Cloud Growth In Focus After Legacy Unit Spinoff
By Investing.com (Haris Anwar/Investing.com)   |  Jan 24, 2022 06:53
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Reports Q4 2021 results on Monday, Jan. 24, after the market close
  • Revenue Expectation: $16.07 billion
  • EPS Expectation: $3.30

When International Business Machines (NYSE:IBM) reports fourth quarter earnings later today, investors will focus on the information technology services company’s efforts to turn around its business after years of underperformance.

IBM Weekly TTM
IBM Weekly TTM

Unlike major tech competitors such as Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), IBM has failed to attract investors who have found the 109-year-old company too slow to evolve from its legacy IT businesses.

To change that perception and to revive growth, the Armonk, New York-based IBM is in the middle of a major restructuring. During the past quarter, the company completed the spinoff of its $19 billion information technology services business, Kyndryl Holdings (NYSE:KD), as part of Chief Executive Arvind Krishna's push to focus on cloud computing where major growth is happening.

The separation has capped IBM’s fourth major transformation and cemented its pivot away from slower-growth mainframe computing and IT services. In another move, IBM agreed to sell part of its Watson Health business this month for $1 billion, reversing a course which earlier gave health care a major priority.

Since taking over as the CEO in April 2020, Krishna has reorganized the company’s business around a hybrid-cloud strategy, which allows customers to store data in private servers and on multiple public clouds. IBM completed its purchase of Red Hat for $33 billion in 2019, the first step in a shift to what it calls hybrid-cloud.

The performance in this highly competitive field of cloud computing, where Amazon (NASDAQ:AMZN) and Microsoft are the two leading players, has been slow but steady. Total cloud revenue over the last 12 months until Sept. 30 grew 14% to $27.8 billion with Red Hat sales increasing 17% during the third quarter.

Long-Term Path to Success

Investors, however, remain mostly in a wait-and-see mode. IBM stock rose just over 14% in the past one year, but shares are down about 20% over the last five years, highlighting the long-term path to success for the company that will require consistently beating analysts’ revenue estimates.

Still, some analysts’ are cozying up to the stock, betting that this is the right time to take advantage of the company’s reasonable valuation.

IBM Fair Value
IBM Fair Value

Source: InvestingPro

According to InvestingPro’s model, IBM stock’s fair value is around $183, implying about 42% upside potential.

This month, Goldman Sachs initiated coverage of IBM, providing a neutral rating, but said the company is well positioned for accelerating transformation spending ahead. Its note said:

“We believe IBM is well positioned for better growth, profitability, and sustainable shareholder return with elevated enterprise transformation demand anticipated ahead.”

In our view, IBM is a safe dividend stock, especially after the clear shift to cloud computing—a high-growth business—the company's new management has championed. These steps are encouraging and could unlock the value of IBM stock, which has hiked its dividend for 26 years straight.

The stock currently pays $1.64 a share quarterly dividend, which translates into a 5.27% annual yield, making it one of the highest-yielding dividend stocks among blue chip companies.

Bottom Line

IBM may not produce a big surprise when it reports later today, given its uneven performance amid major restructuring. Still, we see the company slowly getting back on a path to growth.

Its healthy balance sheet, manageable debt and robust dividend yield of more than 5% make this stock a bet worth considering, especially when its turnaround is gathering pace.

IBM Q4 Earnings Preview: Cloud Growth In Focus After Legacy Unit Spinoff
 

Related Articles

IBM Q4 Earnings Preview: Cloud Growth In Focus After Legacy Unit Spinoff

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email