Reports Q4 2020 results on Thursday January 21, after market close
Expected Revenue: $ 20.64 billion
Expected earnings per share: $ 1.81
When International Business Machines (NYSE 🙂 reports fourth quarter earnings later in the day, investors will be keen to find out if the company's cloud computing unit is producing enough growth to offset the pandemic slowdown that the affects other companies of the technology company.
It is a difficult balancing act for the 109-year-old giant who has been slow to restructure his business at a time when demand for its big-frame servers and other hardware was declining and his customers began to store their data in the cloud services offered by rivals, such as Amazon (NASDAQ 🙂 and Microsoft (NASDAQ :).
The five-year chart of IBM shares clearly tells this story.
IBM 2016-2021
During that period, stocks barely moved, while the tech-heavy rose 187% in the same period.
IBM Long-Term Weekly Chart.
IBM closed at $ 130.08 yesterday.
To turn its fortune, IBM & # 39; s new CEO Arvind Krishna is committed to hybrid cloud software and services, referring to companies using a combination of their own servers and renting storage and computing power from major providers. In 2018, IBM spent $ 34 billion to buy Red Hat to become a leader in the field.
In an October analyst conference call, as reported by Bloomberg, Krishna said:
“Looking ahead, the arguments for hybrid cloud are clear. It's a great $ 1 trillion opportunity with the bulk of the business opportunity ahead of us. "
Attractive Valuations
To get his focus right, he restructured his team, laid off employees and announced in the previous quarter that the Armonk, New York-based company will divest a slower-growing company that manages corporate computer systems, essentially dividing IBM into legacy IT management and a newer cloud unit.
However, these impressive changes have failed to convince investors who continue to see the company struggling amid intense competition in the cloud market. After all, IBM reported its ninth straight quarter of declining or flat sales and gave no forecast citing pandemic-related uncertainty.
IBM is, in our opinion, becoming an attractive stock to bet on, especially after the marked shift from new management to cloud computing. These steps are encouraging and can unlock the value of IBM stock.
IBM stock is now trading at a valuation well below that of its competitors. The 10.96 times forward price-earnings ratio is cheaper than the Technology Select Sector SPDR® ETFs (NYSE 🙂 25 times the multiples and the First Trust Cloud Computing ETFs (NASDAQ 🙂 35 times the multiples. But at the same time, IBM is in a tough market where Microsoft and Amazon have already taken a significant lead.
Bottom Line
After the acquisition of Red Hat, and with new management, we see IBM slowly getting back on a growth path. IBM & # 39; s healthy balance sheet, manageable debt and a dividend yield of more than 5% make the stock worth considering, especially when the turnaround is faster.
