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International Business Machines Corp IBM

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IBM Beats on Q4 Earnings but Continues to Suffer from Cloud Workload Migration; Shares Fairly Valued

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

IBM reported fourth-quarter results that beat CapIQ earnings consensus expectations--but top line performance weighed on overall results, as the company’s revenue came behind CapIQ consensus estimates. While we forecast a return to top line growth for IBM in the upcoming fiscal year, a meager annual growth of 1% year over year is the extent we expect. IBM’s largest and worst-performing segment, global technology services is still expected to be spun off by the end of fiscal 2021. We continue to believe this spin-off will only improve IBM’s remaining business in optics--as the separation should expose IBM’s other segments’ better growth and profitability profiles. We are maintaining our fair value estimate of $125 per share for the narrow-moat name, which leaves shares fairly valued, 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.

One New Orchard Road
Armonk, NY, 10504
T +1 914 499-1900
Sector Technology
Industry Information Technology Services
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 381,100