Should I Buy IBM Stock? A Comprehensive Analysis
IBM (NYSE: IBM) is one of the oldest and most respected names in the technology industry, but it has been struggling to grow its revenue and earnings in recent years. The company has been undergoing a major transformation to focus on cloud computing, artificial intelligence, and software solutions, while divesting some of its legacy businesses. But is this enough to make IBM stock a good investment?
In this article, we will look at some of the key factors that affect IBM’s stock performance, such as its financial results, analyst ratings, growth prospects, dividend policy, and competitive advantages. We will also compare IBM with some of its peers in the tech sector, such as Microsoft (NASDAQ: MSFT), Oracle (NYSE: ORCL), and SAP (NYSE: SAP). Finally, we will give our opinion on whether you should buy IBM stock or not.
IBM’s Financial Results
IBM’s financial results have been mixed in the past few quarters. On one hand, the company has been able to beat analyst expectations for both earnings and revenue consistently. On the other hand, the company’s revenue has been declining year-over-year for several quarters, mainly due to the impact of the COVID-19 pandemic and the sale of some of its low-margin businesses.
In the first quarter of 2023, IBM reported revenue of $15.56 billion, a decrease of 0.2% compared to the same quarter last year, but slightly above the consensus estimate of $15.53 billion. The company’s earnings per share (EPS) was $1.36, a decrease of 41% year-over-year, but above the consensus estimate of $1.26. The company’s cloud revenue grew by 21% year-over-year to $6.5 billion, accounting for 42% of its total revenue. The company’s software segment also grew by 4% year-over-year to $5.4 billion. However, the company’s consulting segment declined by 2% year-over-year to $3.9 billion, and its infrastructure segment declined by 11% year-over-year to $4.8 billion.
For the full year of 2023, IBM expects to generate revenue growth in the mid-single digits and adjusted EPS of at least $9.43. The company also expects to generate free cash flow of about $10 billion. These guidance figures are slightly below the average analyst estimates of $9.47 for EPS and $62.23 billion for revenue.
IBM’s Analyst Ratings
According to Yahoo Finance, IBM has a consensus analyst rating of “Buy” based on 9 ratings. The average price target for IBM stock is $144.78, which implies a potential upside of 15.7% from its current price of $125.16 (as of May 2, 2023). The highest price target for IBM stock is $165, while the lowest price target is $125.
Some of the recent positive comments from analysts include:
- “We believe IBM is well positioned to benefit from the secular trends in cloud computing, AI, and software as a service (SaaS). We also like IBM’s strong balance sheet, cash flow generation, and dividend yield.” – Morgan Stanley
- “We are impressed by IBM’s progress in its cloud and software businesses, which are showing strong growth and margin improvement. We also think IBM has a competitive edge in hybrid cloud solutions, which are in high demand among enterprise customers.” – Bank of America
- “We think IBM is undervalued relative to its peers in the tech sector, given its attractive valuation multiples, stable earnings growth, and high return on equity. We also see upside potential from IBM’s strategic partnerships with SAP, Adobe, and Salesforce.” – UBS
IBM’s Growth Prospects
IBM’s growth prospects depend largely on its ability to execute its strategic transformation and capitalize on the opportunities in the cloud computing and AI markets. The company has been investing heavily in these areas, acquiring companies such