The Bullish and Bearish Case for IBM in 2015

Another issue is IBM’s balance sheet. It had some $32.8 billion in long-term debt at the end of September, along with total liabilities of $104.6 billion. Yahoo! Finance even showed the balance sheet having negative net tangible assets for at least the past three years. That figure removed some $35 billion or so in goodwill and intangible assets of 2013 from the balance sheet. Still, IBM’s September 30 balance sheet had over $9.5 billion in cash and cash equivalents and another $16.1 billion or so in long-term investments.

24/7 Wall St. also named IBM as one of 10 companies and stocks that would not be saved by the bull market alone. In essence, IBM will have to make some big decisions ahead to get its stock back on track.

One bit of good news is that IBM is still one of the planet’s top spenders in research and development. Why this matters is that companies with large R&D budgets are said to make for some of the most sound long-term investments. Does that mean that IBM could be an accidental DJIA winner in 2014? Perhaps, but something currently not priced into the stock has to occur.

ALSO READ: The Bullish and Bearish Case for AT&T in 2015

IBM only just recently finally dropped its $20 in earnings per share goal for the end of 2015. IBM has been cutting costs endlessly to get there, and frankly it was weighing heavily on workers inside the company. Even a company as large as IBM can only take out so much incentive from technology salespeople before they go elsewhere. IBM is supposed to be one of the backlog kings. Even with that backlog of $128 billion at the end of the last quarter, that was down 7% from a year earlier and its margin was under pressure as well.

Having Warren Buffett as a top shareholder is supposed to be a good thing. It has not helped IBM at all, despite the stock now being a top holding at Berkshire Hathaway. It was announced in 2014 that GlobalFoundries would acquire IBM’s Microelectronics OEM semiconductor business and manufacturing operations. Unfortunately, that loss from discontinued operations in the third quarter included a non-recurring pretax charge of $4.7 billion, or $3.3 billion net of tax. IBM even disclosed that it would transfer approximately $1.5 billion in cash to GlobalFoundries in the deal.

After a dividend-adjusted performance of -12.4% in 2014, IBM’s total upside, with the dividend included, for 2015 is expected to be 7.8%. The good news is that IBM’s highest analyst target price of $198 would imply upside north of 25%, if you include its dividend yield. The bad news is that analyst price targets here have tended to keep drifting lower for more than a year now.

It is very easy to remain negative when it comes to IBM. Still, investors often look for the DJIA’s biggest losers to be the surprise recovery stocks for the next year. IBM peaked around $215 back in early 2013, but that now feels like a very long time ago. If Rometty has any big plans up her sleeve, she might want to get them started.

ALSO READ: The Bullish and Bearish Case for Cisco in 2015

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