By shifting its focus to fields like artificial intelligence and cloud computing, this stock is setting itself up for decades of growth.
While the transformation will take several years to complete, the company will increase its share of revenue from ongoing services and decrease the number of its slower-growing businesses. It has also paid a dividend for 102 years and raised that payment each of the past 23 years. The stock currently yields a high 4.3%.
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INTERNATIONAL BUSINESS MACHINES CORP. (New York symbol IBM; www.ibm.com) is one of the world’s largest computer companies, with operations in over 175 countries.
The company began operating in 1911 as Computing-Tabulating-Recording Co.; changed its name to International Business Machines in 1924.
It has paid regular dividends for 102 years.
IBM annually spends 7% to 8% of revenue on R&D.
Due to falling demand for its mainframe computers and consulting services, IBM continues to aggressively expand into faster-growing fields. They include cloud computing (the storage of data files and programs on remote servers using the Internet), cybersecurity, and analytics software (like its Watson supercomputer, an artificial intelligence and data platform) that can process increasingly large amounts of data.
At the same time, IBM has sold some of its slower-growing businesses. That includes the low-end server business it sold to China’s Lenovo Group for $2.1 billion in 2014.
Partly due to those asset sales, IBM’s revenue fell 19.5%, from $98.4 billion in 2013 to $79.1 billion in 2017.
Earnings declined 29.0%, from $18.4 billion in 2013 to $13.0 billion in 2016. IBM is an aggressive buyer of its own shares. As a result, per-share earnings fell at a slower rate of 18.3%, from $16.64 in 2013 to $13.59 in 2016. Overall earnings fell a further 0.7% to $12.9 billion in 2017. However, earnings per share gained 1.5% to $13.80, on fewer shares outstanding.
Blue Chip Stocks: Revenue from Strategic Initiatives rises by 10%
In the three months ended March 31, 2018, IBM’s total earnings rose 2.2%, to $2.27 billion from $2.22 billion a year earlier. Due to fewer shares outstanding, per-share profits gained 4.3%, to $2.45 from $2.35.
The company’s revenue in the quarter improved 5.1%, to $19.07 billion from $18.16 billion a year earlier. However, if you factor out exchange rates, revenue was flat. That’s mainly because slowing demand at IBM’s older businesses offset strong growth from newer businesses.
Excluding currency rates, revenue from Strategic Imperatives (IBM’s cloud, analytics and other new businesses) rose 10% in the latest quarter. These operations now account for 47% of total revenue.
Those figures exclude unusual items such as costs related to recent acquisitions, changes to IBM’s employee pension plans and items related to the new U.S. tax code. On that basis, the latest earnings beat the consensus estimate of $2.39 a share.
IBM continues to focus its product development on its Strategic Imperatives. It spent $1.41 billion (or 7.4% of revenue) on research in the quarter. That spending is down 5.3% from $1.48 billion (or 8.2% of revenue) a year earlier.
As of March 31, 2018, the company had long-term debt $40.4 billion—a moderate 30% of its market cap. It also held cash of $11.9 billion, or $12.97 a share. Its sound balance sheet should further support transformation.
IBM has paid dividends continuously since 1916 and has increased the annual rate each year for the past 23 years.
With the June 2018 payment, IBM will raise the quarterly dividend by 4.7%, to $1.57 a share from $1.50. The annual rate of $6.28 yields a high 4.3%.
The company expects to earn at least $13.80 per share in 2018, and the stock trades at an attractive 10.6 times that forecast.
Recommendation in Wall Street Stock Forecaster: IBM is a buy.
There is a reason Warren Buffet’s Berkshire Hathaway dumped all their IBM stock and bought AAPL. IBM completely missed the transition to cloud-based computing and is trying to play catch-up, but lags behind Amazon Web Services (AWS), Microsoft, Google, and others. IBM is a “sucker yield”.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
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Does TSI Network Use the Information It Receives?
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Changes to this Policy
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TSI Network may revise this Policy from time to time.
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There is a reason Warren Buffet’s Berkshire Hathaway dumped all their IBM stock and bought AAPL. IBM completely missed the transition to cloud-based computing and is trying to play catch-up, but lags behind Amazon Web Services (AWS), Microsoft, Google, and others. IBM is a “sucker yield”.