International Business Machines (IBM) Is Zacks Rank # 5 (Strong Sell) and offers advanced information technology solutions, computer systems, quantum computing and supercomputing solutions, enterprise software, storage systems, and microelectronics.
“Big Blue” has been struggling for the past 10 years, so we tried to adjust and pivot to the cloud. The acquisition of Red Hat helped with this idea, but recent earnings reports have disappointed investors.
Stock prices are currently on a downtrend and may challenge the 2022 lows.
About the company
IBM is headquartered in Armonk, NY. The company was founded in 1911 and employs more than 280,000 people.
The company operates through four business segments: software, consulting, infrastructure, and finance.
IBM has a value of $ 114 billion and a forward PE of 13. The stock holds a Zack Fair score of “C” in value, “B” in growth and “B” in momentum. Stocks pay a dividend of 5%.
Q2 Revenue
The company reported EPS last week, with a second quarter of $ 2.31 and an estimate of $ 2.29. Revenue was $ 15.5 billion vs. $ 15.1 billion. IBM confirmed the FY22 at the mid-single-digit model cap, but narrowed the FY22FCF from $ 10 billion to $ 10 billion.
Margins decreased from 55.2% to 53.4% year-on-year. Software, consulting and infrastructure revenues all increased year-over-year.
A comment from CEO Arvind Krishna.:
“This quarter, driven by client demand for hybrid cloud and AI products, we achieved balanced growth across the region and good revenue performance. The IBM team successfully implemented its strategy. “
Estimate
Analysts have already begun to withdraw their quotes as a result of their earnings reports.
After stabilizing over the past few months, estimates have fallen off the cliff in the last 7 days. Estimates for the quarter fell from $ 2.57 to $ 2.07, or 20%.
The situation looks like it will improve in the next quarter, but next year’s estimates are expected to drop again. Over the last 60 days, the number has been reduced from $ 10.81 to $ 10.26, or 5%.
Technical take
The stock price held up well before earnings, as it was backed by a 50-day moving average. However, IBM is currently trading below all moving averages after the earnings report, slicing at $ 130.50 throughout the 200 days.
This year’s lows are just under $ 120. If the momentum continues and bears are likely to target 2021 lows around $ 113, these need to be removed.
Looking at the Fibonacci level, the 61.8% retracement from the May lows to the June highs was $ 133. However, this support is broken and bears should target a 161.8% expansion for $ 113. This is consistent with the low support of 2021.
In summary
Big Blue had some positives in the quarter, but investors were totally disappointed. Stock prices have fallen by more than 8% after earnings, and market weaknesses could bring back the 2022 lows.
Stocks pay great dividends, but as cash flow declines, investors can begin to lose confidence in their payments.
For now, a better option in this sector may be Agilysys (AGYS). The stock is Zack Rank # 2 (purchased) and has held up relatively well for the past 6 months.
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The views and opinions contained in this document are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.
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