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International Business Machines Corp IBM

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IBM’s Q1 Sees Break From Mainframe Cyclicality, Leaving No Zzzs in Systems; Shares Fairly Valued

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

IBM’s first quarter results came in above our expectations as its consulting business started to pick up--and its z15 mainframes unexpectedly took a turn for the better--breaking from expected market cyclicality. Market volatility and security concerns increased mainframe capacity needs, leading to nearly 50% year-over-year growth in the seventh quarter since the z15 model’s launch. Despite the impressive breach of typical trends, IBM doesn’t expect such anomalous activity in the smaller systems segment to continue--as it reiterates guidance for 2021 which includes revenue growth. We think top-line growth is feasible due to the easy compare from a hard-hit 2020 as well as our belief that global business services, which is now growing, is a harbinger for recovery throughout the rest of the business. All in all, we’re maintaining our fair value estimate of $125 per share for the narrow-moat IT services provider, which leaves the company fairly valued.

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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 Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 375,300