IBM Becomes Best Performing Dow Stock of 2019

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Hand it to Virginia M. (Ginni) Rometty, board chair, president and chief executive officer of International Business Machines Corp. (NYSE: IBM). After a long period of quarterly revenue drops and mixed attempts to turn the more than century-old tech company into a cloud and artificial intelligence behemoth, many on Wall Street have become believers. The firm’s share price is up 22.68%, pacing ahead of all other stocks that are components of the Dow Jones industrial average.

The move upward began in earnest in late January. When IBM announced its fourth-quarter 2018 and full-year numbers, the figures exceeded most expectations. Revenue erosion has not stopped entirely but is better. For the full year, revenue was $79.6 billion, up from $79.1 billion in 2017. For the fourth quarter, revenue was $21.8 billion, down from $22.5 billion. The real turnaround was on the 2018 bottom line. Net income for the entire year of 2018 was $8.7 billion, against $5.8 billion in 2017.

Rometty has said almost the same thing when each quarter has ended over the past three years. However, the comments were more believable this time, based on IBM’s numbers. Commenting on the year, she said: “In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security.” IBM’s financial statements about its results in these areas are still muddled, but one message was clear. Cloud revenue was $19.2 billion, higher by 12% than in 2017. IBM may still lag behind Amazon.com and Microsoft by this measure, but its overall revenue for its cloud business is finally a meaningful part of the whole.

IBM still has to struggle with falling demand for its hardware and tech support systems, and that problem will persist for years. It is a problem its primary rivals do not have to any considerable extent.

The jury is still out on IBM’s future, but it has turned from one about which there has been mostly pessimism to one with some hope. Widely regarded Morningstar analyst Andrew Lange said:

IBM’s pervasiveness across the enterprise IT landscape is undeniable, as the company has been at the forefront of providing high-quality IT hardware, software, and services on a global scale for decades. Still, enterprise adoption of cloud computing, commoditization of hardware, and exposure to legacy IT services mean that IBM needs to pivot. Its core operations are stagnant, and the company is doubling down on higher-growth “strategic imperatives,” to counteract the growth shortfall.

That is the kind of comment IBM did not get just a few quarters ago.

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