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International Business Machines Corporation (NYSE: IBM ) has been busy streamlining its business over the past decade, shedding underperforming assets and focusing on high-value products and services. From a legacy technology company, it has evolved into a provider of cloud computing, mainframe and security services to top enterprises.
Stock up
For IBM stock, it has been a roller coaster ride for some time. It bounced back from a year low a few months ago and entered an upward spiral, after the last earnings release. IBM is trading comfortably above its 52-week moving average, outperforming the market. With the factors behind the recent uptrend still in place, the stock is unlikely to retreat in the near future. For those who missed the opportunity last year, it’s time to add it to your portfolio. However, short-term traders may be disappointed.
Also Read: International Business Machines Corporation Q3 2022 Earnings Call Transcript
When using cash, returning capital to shareholders is a top priority for companies. Over the past ten years, it has reduced the number of outstanding shares five times through a share buyback program. In addition, it has raised its dividend consistently, and currently offers a yield of around 5%. Last month, the stock again crossed the $150 mark, before entering 2023 at a low price.
From IBM’s Q3 2022 earnings conference call:
“We generated $4.1 billion in the first three quarters, more than $900 million annually. We wrapped up payments related to the separation of Kyndryl and the structural actions of 2020 to drive working capital efficiency. In terms of the use of cash in the first three quarters, we invested more than $1 billion in acquisitions, which was more than offset by the results of the businesses we invested in. And we returned almost $4.5 billion to our shareholders in the form of dividends.
A new strategy
Describes growing up competition and changes in the technology landscape, the century-old company recently lost the top spot in the US patent league table to Samsung after remaining there for around thirty years.. It seems to shift the focus to developing the portfolio, instead of maintaining patent leadership. The company is poised to acquire technology company Octo, a technology company that provides specialized digital transformation services to the federal government.
The strategy complements management restructuring initiatives, where the company divested its legacy IT infrastructure business a few years ago to focus more on growth areas like artificial intelligence and cloud computing. Most recently, the company spun off its managed infrastructure services business.
Stock Analysis: Why these blue-chip stocks are worth buying for 2023
Over the past six years, IBM’s quarterly earnings have regularly exceeded or matched estimates, making it one of the best technology companies in relation to analyst estimates. The company is expected to report 7% growth in adjusted earnings when it announces its fourth-quarter results on Jan. 25 after the market closes. However, net revenue is expected to decline 2% annually to $16.37 billion. With long-term trends, it is likely that results will beat forecasts.
Key Number
In the three months ended September 30, all three operating segments registered growth, lifting total revenue 6% to $14 billion. However, the bottom line was negatively impacted by rising costs, and earnings per share from continuing operations fell 2% to $1.81.
Shares of IBM closed the last session at around $2.50 and traded higher in the early hours of Monday’s session. They gained about 2% in the first week of the year.
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