Reports Q4 2021 results on Monday January 24 after market close
Expected Revenue: $16.07 Billion
EPS forecast: $3.30
When International Business Machines (NYSE:) reports fourth quarter earnings later today, investors will focus on the IT services company's efforts to turn its business around after years of underperformance.
Unlike major tech competitors such as Microsoft (NASDAQ:) and Alphabet (NASDAQ:), IBM has failed to attract investors who found the 109-year-old company too slow to evolve from its legacy IT businesses. To reinvigorate growth, Armonk, New York-based IBM is in the midst of a major restructuring. In the past quarter, the company completed its $19 billion spin-off from Kyndryl Holdings (NYSE:) as part of Chief Executive Arvind Krishna's drive to focus on high-growth cloud computing.
]The separation has capped IBM's fourth major transformation and removed the hub of slower-growing mainframe computing and IT services. In another move, IBM agreed to sell a portion of its Watson Health business for $1 billion this month, reversing a course change that previously made health care a top priority. reorganized the company's operations around a hybrid cloud strategy, which allows customers to store data on private servers and across multiple public clouds. IBM completed the $33 billion purchase of Red Hat in 2019, the first step in a shift to what it calls hybrid cloud.
Performance in this highly competitive field of cloud computing, where Amazon (NASDAQ:) and Microsoft are the two leading players, has been slow but steady. Total cloud revenue for the past 12 months to September 30 grew 14% to $27.8 billion, with Red Hat revenue increasing 17% in the third quarter. ]
Investors, however, tend to remain cautious. IBM shares were up just over 14% in the past year, but shares are down about 20% in the past five years, highlighting the company's path to long-term success, which requires consistent beating from analysts .
]Still, some analysts are preoccupied with the stock, betting that now is the right time to take advantage of the company's reasonable valuation.
Source: InvestingPro
According to InvestingPro's model, IBM The stock's fair value is around $183, which represents an upside potential of approximately 42%.
This month, Goldman Sachs started covering IBM, with a neutral rating, but said the company is well positioned to accelerate transformation spending ahead. The note read:
"We believe IBM is well positioned for improved growth, profitability and sustainable shareholder return, with greater demand for business transformation expected."
In our view, IBM is a safe dividend stock, especially after the clear shift to cloud computing – a fast-growing business – advocated by the company's new management. These moves are encouraging and could unlock the value of IBM stock, which has increased dividends for 26 straight years. The stock currently pays $1.64 per quarterly dividend, which translates into an annualized return of 5.27%, making it one of the highest-yielding dividend stocks among blue chip companies.
Bottom Line
IBM may not be a big surprise when it reports later today, given its uneven performance amid major restructuring. Nevertheless, we see that the company is slowly returning to growth. Its healthy balance sheet, manageable debt and robust dividend yield of more than 5% make this stock worth considering, especially when the turnaround starts. gained momentum.
