Is Any News Good News for IBM?

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International Business Machines Corp. (NYSE: IBM) reported fourth-quarter 2019 results after markets closed Tuesday. For the quarter, the technology giant company posted adjusted diluted earnings per share (EPS) of $4.71 on revenues of $21.78 billion. In the same period a year ago, the company reported EPS of $4.87 on revenues of $21.76 billion. Fourth-quarter results also compare to consensus estimates for EPS of $4.68 and $21.64 billion in revenues.

For the full year, adjusted EPS totaled $12.81 on revenues of $77.1 billion, compared to 2018 full-year EPS of $13.81 and revenues of $79.59 billion

IBM closed its acquisition of Red Hat software early in the third quarter, and the company said that deal contributed to third-quarter revenue growth of 17.2% in the company’s cloud and data platform segment. Fourth-quarter revenue growth in the segment was 9%.

One very noticeable item in IBM’s history since 2010 is that the stock lags far behind the S&P 500 index with a gain of just under 20% compared to the index gain of more than 150%. Also note that it was not among the top tech stocks seeing a rash of analyst upgrades ahead of earnings.

CEO Ginni Rometty said:

We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance. Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise.

Big Blue said it expects its full-year adjusted EPS guidance of at least $13.35, which would be higher than fiscal 2019 EPS. But IBM failed to beat earlier guidance for 2019 of at least $13.90. Free cash flow is forecast at $12.5 billion, including, presumably, a $500 million contribution from Red Hat.

The company did hack away at its debt. At the end of the fourth quarter, total debt amounted to $62.9 billion, down $3.4 sequentially and down by $10.1 billion over the past six months of 2019. The Red Hat acquisition cost the company $34.8 billion in cash.

IBM’s stock traded closed up about 0.6% Tuesday at $139.17. In Wednesday’s after-market session, shares traded up by more than 4% at $144.95 in a 52-week range of $121.54 to $152.95. The consensus 12-month price target on the stock is $146.89. IBM’s dividend yield as of Wednesday’s close was 4.69%.


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