* Reports Q1 2020 results on Monday, April 20, after market close
* Expected Sales: $ 17.63 billion
* EPS Forecast: $ 1.78
When International Business Machines (NYSE 🙂 reports first-quarter earnings later today, investors will focus on two things: how the pandemic is affecting its business and what the new management plans to do to reverse the turnaround. accelerate business.
Today's profit will be the first after Ginni Rometty stepped down as CEO on April 6, following a challenging eight-year run at the top of the iconic technology company. During her tenure, sales declined and competitors captured market share in the cloud infrastructure market.
Her successor, Arvind Krishna, headed the company's cloud and cognitive software division. Jim Whitehurst – the director of Red Hat, the open-source software giant that IBM made for about $ 34 billion last year – was named president of the company.
IBM's new management structure has brightened the prospects for the Armonk, NY-based company to reverse the declining sales trend and become a strong competitor in the cloud computing market where Microsoft (NASDAQ 🙂 and Amazon (NASDAQ 🙂 the main players. IBM is currently the fifth largest public cloud infrastructure provider, according to research firm Gartner, with a market share of less than 2%.
Rometty spearheaded the company's acquisition of Red Hat last year, gambling on hybrid cloud technology to reverse the lingering decline in revenue. She said the deal would add a relatively high-margin software company to IBM's offering at a time when the company's big customers shun hardware and store their data on rival cloud services.
Signs of Progress
The company, published in January, demonstrated that these efforts are starting to deliver results: Analysts' sales in the fourth quarter exceed analyst estimates and break a series of five consecutive drops.
Red Hat contributed $ 1 billion to sales in the quarter ended December 31, but IBM was only allowed to recognize $ 573 million of those due to US accounting standards.
Despite these positive signs, it is unlikely that IBM will escape the blow of the COVID-19 pandemic that is suppressing the global economy and slowing business investment. The consensus on the street shows that sales in the first quarter are likely to decrease by 3% and earnings per share by 20% compared to the same period a year ago.
That weakness is strongly reflected in the price of IBM's stock, which has fallen 10% this year and closed at $ 120.12 on Friday. Despite this slide, however, there is some light at the end of the tunnel: IBM could certainly see benefits in the post-coronavirus world if companies expand their technical budgets, focusing on storage, WiFi, broadband, access, and cloud infrastructure.
Bottom Line
In the short term, IBM will continue to be affected by the decline caused by the coronavirus that will reduce its sales and profitability. But with new management and their keen focus on the fast-growing cloud market, IBM stock remains an attractive turnaround bet for long-term passive investors.
Shares yield 5.6% – more than double the average of 2.31% – with an annual dividend payment of $ 6.48. The company has increased its dividend five times in the past five years. We believe the upside potential remains high if the information technology company can demonstrate that the Red Hat acquisition is starting to bear fruit.
