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International Business Machines Corp IBM

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1-Star Price

PREMIUM

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PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

IBM’s Q2 a Tale of Two Drivers, but Kyndryl Spin-off Will Moderate Headwinds Soon; Shares Overvalued

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

In IBM’s second quarter, the company dealt with continued headwinds to its managed infrastructure business because of the option to now have public cloud providers manage workloads, while also benefiting from cloud tailwinds in its software and business services portfolio. But IBM won’t experience as significant offsetting trends thanks to the cloud in its results for much longer. IBM plans to spin off its managed infrastructure business, which will be called Kyndryl, by the end of this fiscal year. IBM retained its adjusted free cash flow expectations at a midpoint of $11.5 billion for 2021, while refraining from providing a top- and bottom-line outlook. As a result, we’re maintaining our fair value estimate of $125 per share for narrow-moat IBM, which leaves the company overvalued, in our view.

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Company Profile

Business Description

IBM looks to be a part of every aspect of an enterprise’s IT needs. The company primarily sells infrastructure services (37% of revenue), software (29% of revenue), IT services (23% of revenue) and hardware (8% of revenues). IBM operates in 175 countries and employs approximately 350,000 people. The company has a robust roster of 80,000 business partners to service 5,200 clients--which includes 95% of all Fortune 500. While IBM is a B2B company, IBM’s outward impact is substantial. For example, IBM manages 90% of all credit card transactions globally and is responsible for 50% of all wireless connections in the world.

Contact
One New Orchard Road
Armonk, NY, 10504
T +1 914 499-1900
Sector Technology
Industry Information Technology Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 375,300

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