For years, International Business Machines (IBM – Free IBM Stock Report), commonly known by its acronym and ticker IBM, or the nickname Big Blue, has been a worldwide supplier of advanced information processing technology, communications systems, services, and program products. Its name is synonymous with the boom in computing and data sharing that powered the tech world through so much growth and change in the last several decades. All the while, its stock has been a Dow-30 component and a bellwether for the technology sector as a whole. But of late, things seem to be taking a turn for the worse at IBM. High-profile names like Apple (AAPL) and Google (GOOG) get the majority of the headlines nowadays, and the news that is generated by Big Blue has not been positive in recent quarters.
The company is facing a myriad of issues presently in the ever evolving computing world, but we are not yet ready to believe that things are as bad as some bears are depicting. Management, led by CEO Virginia Rometty, (as seen in the Business Description or Blurb in the middle of the Value Line page), has a plan to transition to new ways of computing; delivering the software-defined data center and software via a subscription. Making these moves will not be easy, and changes will not be visible overnight. Add to this that competition in these spaces is at a fever pitch, and the task at hand becomes even more difficult. Still, we think IBM has the brain power to get it done.
And, as noted in the Commentary segment of our page, “the stock’s pullback has created the best entry point in a few years”. It’s not every day that Dow components come at a discount, but that is exactly what we have on our hands in the current market.
A quick glance at the Value Line page can provide insight as to what is ailing the company. Let’s start at the top line. The Quarterly Revenues box is not pretty. Sales at IBM have tapered off in each of the last three years, as the company struggled to immediately pick up on hot technology trends, such as cloud computing. The bottom line has held up better, as evidenced in the Quarterly Earnings box, which shows Big Blue has managed to move the needle in a positive direction even with dwindling sales. In fact, most of the recent stories floating around indicate that the computer tech giant is gearing up for a significant workforce reduction as part of its ongoing cost-cutting program, aimed at boosting earnings. Also, IBM has exited businesses that were no longer meeting its growth standards or considered noncore operations. The most recent example of such a divestiture was the sale of its semiconductor manufacturing arm.
One glaring segment of the Value Line page that paints IBM in a poor light is the Annual Rates box. Let’s take a look at the numbers posted in the past ten- and five-year periods, and compare these with the average between 2011 and 2013 and what we forecast out to late decade. From the figures, it seems clear that changes are necessary. Has management been late in acknowledging this and beginning the process of improvement now? Many would say “yes”, but even that is debatable. The bottom line is that those plans are currently in the works, and how soon these efforts begin to bear fruit will be important in knowing if and when the share price will rebound. The High/Low portion of our page, which can be found just above the Price Chart or Graph, shows that these shares were as high as $215 at their peak. In recent trading, the quotation dipped to near the $150 mark.
So from recently depressed trading levels where do we have IBM shares pegged to be trading at out to 2107-2019? In the upper left-hand corner of the page, the Projections box shows our range out to that timeframe to be between $220 and $270. That would be a handsome incline from the aforementioned $150. But, this will depend on a number of factors. First and foremost, IBM needs to hit revenue and earnings targets. The chances of them doing just that, using history as a guide, is illustrated by the Earnings Predictability, a metric found at the bottom right-hand side of the page in the Ratings section. IBM receives our top score for this (100 out of 100). It is worth noting that in that same box, the Stock Price Stability score is present as well. Big Blue’s mark of 90 out of 100, and its 1 (Highest) ranking for Safety, located in the Ranks box at the top left of the report, combine to show a well-regarded company that is going through a tough time. In closing, we feel that the upside here far outweighs the downside from current price levels.