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Organic Growth Is What's Missing From The IBM Story At This Point

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Sherri Scribner of Deutsche Bank is concerned with International Business Machines Corp. (NYSE: IBM)’s lack of organic growth and falling margins.

Scribner maintained her Hold rating despite IBM’s third quarter beat.

IBM’s third quarter sales of $19.2 billion and EPS of $3.29 came in modestly above Street expectations of $19.0 billion and $3.23. IBM also reiterated its full-year FY-16 EPS guidance of at least $13.50 and reiterated FCF guidance at the high end of its target range of $11-$12 billion in FY 2016.

“With limited visibility on a return to sales growth or a turn in downward margins trends, we see risk/reward as balanced,” Scribner wrote in a note.

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

Strategic Imperatives grew 15 percent year-over-year, with growth coming from both the Analytics and Cloud segments. However, gross margins continue to drop from last year with Cognitive margins down 4ppts year-over-year, with other segments too reporting year-over-year declines.

“Below the operating line, higher IP income helped EPS by roughly $0.14 after taxes, while a lower tax rate also added $0.14 in the Q, suggesting EPS would have been $0.28 lower excluding these items,” Scribner added.

The analyst maintained her 2016/2017 EPS estimate of $13.50/$12.95 and price target of $145.

At time of writing, shares of IBM fell 2.71 percent to $150.58.

Latest Ratings for IBM

DateFirmActionFromTo
Oct 2017Pivotal ResearchInitiates Coverage OnBuy
Oct 2017BarclaysMaintainsUnderweight
Oct 2017BMO CapitalMaintainsMarket Perform

View More Analyst Ratings for IBM
View the Latest Analyst Ratings

Posted-In: Deutsche Bank Sherri ScribnerAnalyst Color Reiteration Analyst Ratings

 

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