Not Much Cheaper

IBM (IBM) was $194 when I updated my data on the stock in Q3. Now, in Q4, the stock is $162 after it dropped like a rock when it reported last quarter’s earnings.

But even after the fall, IBM’s not much cheaper than it was last quarter. On . Last quarter the stock had a P/E of 11. This quarter the P/E is 10. And this quarter the profit outlook is worse. Unless IBM beats the street in Q4 it will have the first down year in profit growth in more than a decade. Profits are down and sales are down. Negative growth. Even a fat dividend and a nice stock buyback isn’t helping the stock. Investors want growth and IBM isn’t giving it.

One Year Chart

Here’s how IBM looks this quarter. -8% profit growth last quarter on -4% sales growth. Estimates show negative growth could continue this quarter as well, and you can’t put much faith in that 2QtrsOut estimate because that just got slashed and it could get hit again. In fact the only reason the +26% is there is because last year’s comparison number was so horrible.

2014 earnings estimates just fell from $17.90 to $16.13. 2015’s dropped even more, from $19.83 to $16.91. Also the Est. Long Term Growth Rate just got cut from 9% to 6%. Not pretty.

Fair Value

Still, the stock’s a value if it can just stop leaking water. IBM has sold for around 12 times earnings in the last decade. If the company starts upping these lowered estimates then the stock could shoot to $200.

Sharek’s Take

I’m not looking at buying IBM, but it is a good conservative stock that has proven throughout generations that it can reinvest itself. This is a core buy-and-hold conservative stock that’s good for retirement accounts. At this level this is a good price for value investors willing to wait it out.