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An Attractive Contrarian Story: IBM's Q3 Delivers More Signs Transition Is Moving Forward

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An Attractive Contrarian Story: IBM's Q3 Delivers More Signs Transition Is Moving Forward
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International Business Machines Corp. (NYSE: IBM) reported its Q3 2016 results, with revenue beating expectations. The company also reiterated its 2016 guidance.

Drexel Hamilton’s Brian White maintained a Buy rating on the company, with a price target of $186.

White mentioned that “IBM beat the Street's revenue estimate for the third consecutive quarter and continued to forge ahead with healthy growth in its strategic imperatives. We believe this is creating the foundation for better trends over the next 12-18 months.”

The stock is usually weak following an earnings report. However, the analyst continues to believe that IBM is an attractive “contrarian” story with a rich dividend yield of 3.6 percent.

Related Link: Where Was The Bright Spot In IBM's Earnings?

For Q3 2016, the company reported sales of $19.23 billion, flat year-on-year and ahead of the estimate and the consensus.

The pro forma EPS came in at $3.29, again beating the estimate and consensus, driven by the benefit from a lower than anticipated tax rate.

While all core business segments beat the estimates for Q3, except Systems, White noted that “margin performance missed our projections given the company's aggressive investment in next-generation areas of technology that includes acquisitions and an expanding SaaS portfolio.”

IBM grew its strategic imperatives during the quarter by 15 percent year-on-year to $8 billion, with cloud revenue rising 42 percent to $3.4 billion and analytics growing 14 percent year-on-year to $4.8 billion.

The company reaffirmed its guidance for 2016, with pro forma EPS guidance of at least $13.50 and free cash flow in the high end of the $11-$12 billion range.

The EPS estimate for Q4 2016 has been marginally lowered from $4.94 to $4.93, while the revenue estimate has been lowered from $21.46 billion to $21.45 billion.

Latest Ratings for IBM

DateFirmActionFromTo
Nov 2016Bank of AmericaUpgradesNeutralBuy
Oct 2016Goldman SachsMaintainsNeutral
Oct 2016CitigroupMaintainsNeutral

View More Analyst Ratings for IBM
View the Latest Analyst Ratings

Posted-In: Brian White Drexel HamiltonAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas Best of Benzinga

 

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