IBM (IBM) continues to have issues and to me this stock is like being on a ship with multiple leaks, and when you fix one leak another pops up.
Last qtr IBM had -5% profit growth on -12% sales growth. Some of the negative sales was attributed to IBM selling off (getting rid of) some non-growth divisions — it recently sold a server division to Lenovo for $2.1 billion — and some was foreign exchange related. Take that out and IBM still had -2% sales growth.
With revenues continuing to decay, it’s going to be tough to get the stock price to turn up. IBM’s software division had -7% revenue growth last qtr, Global Technology Services clocked in at -8% and Global Business Services also had -8% growth.
What I really don’t like is Annual Profit Estimates declined once again. This year’s (2015) estimate has fallen from $20 to $17 and now $16 the past three quarters. If we see estimates rise then maybe I can say the bottom is in place. I want IBM to bottom, it’s got good upside if management can right the ship — and plug all the leaks.
One Year Chart
IBM fell off the cliff when it reported earnings 2QtrsAgo. That was when 2015 estimates got slashed from $20 to $17. Wall Street didn’t think this quarter was too bad, as the stock has stayed in the base it had been building.
Looking at the numbers, analysts have dropped the Est LTG to just 5%. So they basically think the company will grow profits just 5% a year for the next 3-to-5 years. That’s not much. This figure used to be 9%.
Fair Value
At 10 times earnings the stock is very inexpensive. If profits can grow say 15% one year the P/E could shoot to 12. That would be enough to take the stock from $156 back to the $190 to $200 area.
Sharek’s Take
I really like IBM for conservative accounts, but as a growth investor I need some momentum to climb aboard. The turn may be when annual earnings estimates stop their decent.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
