IBM released its third-quarter earnings yesterday after the market closed. The stock was down despite the company's earnings results largely aligning with analysts’ estimates. Here are the key takeaways from IBM’s earnings call.
When did IBM report earnings?
IBM released its third-quarter earnings on Monday, Oct. 19 after the market closed, and held its earnings call at 5:00 p.m. ET. It reported revenue of $17.56 billion in the quarter, which was in line with analysts' $17.54 billion forecast. Its adjusted EPS of $2.58 also met analysts’ expectation.
IBM's earning report highlights
While other U.S. tech companies are seeing higher revenue as the COVID-19 pandemic has sped up digitization, IBM’s revenue has fallen YoY (year-over-year) for three consecutive quarters. However, its cloud revenue has been rising, and in the third quarter, it rose 19 percent YoY to $6.0 billion. IBM reported that it generated free cash flow of $10.8 billion over the last 12 months, and $1.1 billion in the third quarter.
Meanwhile, IBM did not provide guidance for the fourth quarter, pointing to “uncertainty.” However, CFO James Kavanaugh said that “from an historical perspective, the fourth quarter seasonally is our strongest quarter in terms of revenue and operating earnings per share due to our high-value software and hardware transactions.”
(3) $IBM CEO Krishna on the conference call promises acquisitions, maintenance of the dividend and de-levering from the Red Hat acquisition by 2022. Amazing! Then the CFO subsequently walks back the acquisitions promise. Are these guys even working together? #ThereIsNoPlan— Diogenes (@WallStCynic) October 19, 2020
Earlier this month, IBM announced the spin-off of its managed infrastructure services business, which could help it focus on its cloud and AI business. Investors have poured money into cloud computing companies, with even Berkshire Hathaway investing in the IPO of cloud-based data storage company Snowflake.
What would the financial markets look like tomorrow if all stimulus (monetary/fiscal) ended today?— Charlie Bilello (@charliebilello) October 19, 2020
What is IBM stock price today?
Investors' optimism over a digital future coupled with the unprecedented liquidity unleashed by this year's fiscal and monetary stimulus has catapulted U.S. tech stocks to record highs. However, IBM stock is down 6 percent in 2020. It was trading almost 3 percent lower at $121.89 after the market closed yesterday.
💰💰💰— 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐅𝐚𝐦𝐨𝐮𝐬 👻💰 📈 (@BusinessFamous) August 3, 2020
$1000 of $MSFT earns $9.95 dividends/year
$1000 of $JNJ earns $27.72 dividends/year
$1000 of $VZ earns $42.78 dividends/year
$1000 of $IBM earns $53.03 dividends/year
$1000 of $XOM earns $82.70 dividends/year
Do you buy from the top of this list or the bottom?
IBM generally pays dividends on the 10th of every March, June, September, and December. So far, it has paid dividends of $4.88 in 2020. By annualizing IBM’s most recent dividend of $1.63 per share, its dividend yield works out to be 5.3 percent—a healthy yield, and more than double the S&P 500’s.
IBM stock forecast
According to CNN, analysts' median price target for IBM is $140, 11.5 percent higher than its current price. Their highest price target is $161, and their lowest price target is $117. Of the 15 polled analysts, four have given it a “buy” rating, while two have rated it as a “sell.” The remaining nine analysts have rated IBM stock as a “hold” or some equivalent.