IBM goes back to solid base with Red Hat Buy; Performs better than peers

International business machines (NYSE 🙂 shares show some strength after a long slump. The momentum has been so strong this year that the share has surpassed its top-level competitors, such as Amazon (NASDAQ 🙂 and Alphabet (NASDAQ 🙂

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The shares slipped yesterday to $ 0.48.17, but have risen to 16 of the past 22 days, and have increased 3.6% since January 28. The advantage of these profits is the optimism that the company's turnaround efforts are finally beginning to bear fruit. the age-old tech giant back on a solid base and reversing the growth slowdown.

IBM weekly

IBM bulls have focused on the strong display of the company in the course of 2018 and the optimistic forecast for the current year, which was reported on January 22

Q4 sales boosted analyst estimates to $ 21.8 billion and the tech giant said it expects an adjusted earnings per share of at least $ 13.90 in 2019, ahead of analyst predictions of $ 13.89. This was also the second quarter in a row in which IBM showed growth after six years of sales decline.

Despite the recent upturn, IBM inventory is still around 36% behind the record level in 2013, testing the patience of the company's buy-and-hold investors. However, since we recommended IBM to counterfeit investors in March last year, we are more convinced that the company is on the right track to realize its long-term cover plan.

Big Blue & # 39; s Blues

Big Blue, as it is sometimes called popular, has struggled with the development of technology and consumer preferences over the past decade, reducing sales growth for this legendary technology giant. Sales peaked in 2011 and free cash flows did so a year later. In this period, IBM left some markets, invested in cloud data centers and bought a number of companies to boost sales, support technology offering and add trove data to train artificial intelligence (AI) algorithms

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A recent survey by Morgan Stanley of leading technology officers, known as CIOs, shows that CEO Ginni Rometty's efforts to refocus IBM's activities on the latest technologies such as the cloud and artificial intelligence, slowly gaining strength

"IBM's transformation was slower than expected, but we see the company spinning the pace toward growth as CIO's priorities are aligned with investments in strategic imperatives and combined with divestments of non-core operations," said Morgan Stanley

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Although IBM has so far been slow to capture a leading market share in the new areas of the digital economy, such as cloud computing, the recent purchase of Red Hat (NYSE) of $ 33 billion changer can prove. This acquisition adds a software company with a relatively high margin to IBM's stable offering, mainly led by the company's hybrid cloud services for business customers. Approximately 85% of all enterprises are expected to use a hybrid cloud approach, generally using a mix of public cloud services such as Amazon Web Services in addition to their own private cloud networks, according to a prediction by Jefferies & Co.

For long-term investors seeking a steady stream of income, the ownership of IBM shares makes much sense. The company intends to return approximately 70% -80% of the free cash flow to the shareholders each year, with annual dividend increases and ongoing share repurchase programs, and expects to share its shares by approximately 2% per annum. Reduce.

Bottom Line

IBM shares remain an attractive turnaround bet suitable for long-term investors with a time horizon of 5-10 years. Despite the recent rally, its share remains 4.5% higher than the five-year average dividend yield of 3.6%.

If you have the patience and power to hold this investment, IBM shares can prove to be a good bet, especially after the Red Hat acquisition by the company and the legacy of the lag delivery companies that continue to provide recurring cash flows

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