Report: Stock Spotlight – IBM

IBM (IBM) reported solid fourth-quarter numbers on Monday, with the company’s strongest revenue rise in more than a decade. The findings imply that CEO Arvind Krishna’s approach for reviving the ailing software behemoth is starting to pay off.

After spinning off its managed IT services company, now known as Kyndryl, IBM has reorganized its business to focus on its software and consulting operations during the previous year (KD). IBM has also agreed to sell its Watson Health division to Francisco Partners, a private equity firm. While the recovery is still in its early stages, today’s figures are expected to inspire Wall Street.

IBM reported sales of $16.7 billion for the December quarter, up 6.5%, or 8.6% adjusted for currency, over the previous year’s spinoff-adjusted numbers. It was the company’s biggest quarterly increase since 2011, and it was far more than the Wall Street consensus expectation of $16.1 billionIBM’s official numbers came in as revenue of $16.7 billion and an EPS (Earnings-per-share) of $3.35 per share.

“We increased revenue in the fourth quarter with hybrid cloud adoption driving growth in software and consulting,” CEO Arvind Krishna stated. “Our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single-digit revenue growth and strong free cash flow in 2022.”

The results include about a 3.5% gain in sales to Kyndryl, a component that IBM has acknowledged and that should be included in current projections. Non-GAAP (Generally Accepted Accounting Principles) earnings were $3.35 per share, higher than the Wall Street forecast of $3.14 per share. The EPS was compared to analysts’ projection of $1.29 per share, making it a 1.91% surprise. In after-hours trade on Monday, IBM shares were up 4.8%.

Its fourth quarter was first under IBM‘s new segment reporting strategy. Revenue in the software area increased by 8% or 10% in constant currency. This includes a 19% gain in revenue at Red Hat, a 13% increase in automation revenue, a 1% increase in data and artificial intelligence revenue, and a 2% decrease in security revenue. Transaction processing revenue increased by 11%, with sales to Kyndryl accounting for 16 points. Consulting revenue increased by 13%, or 16%, when adjusted for currency. Software and consultancy currently account for 70% of total income.

According to IBM, sales from its hybrid cloud business were $6.2 billion in the third quarter, up 16%, or 18%. Hybrid cloud sales were $20.2 billion for the entire year, up 20%. IBM completed the year with $7.6 billion in cash and marketable securities and $51.7 billion in debt, a $9.6 billion decrease over the end of 2020. Since completing the Red Hat buy in 2019, the firm has lowered its debt by more than $21 billion.

IBM currently pays an annual dividend yield of 5.09%, with a quarterly payout of $1.64. The consensus price goal for IBM from analysts providing 12-month price estimates is 143.90, with a high of 164.29 and a low of 115.00The forecast is 9.84% over current pricing, and the consensus among experts is to buy and hold stock in IBM.

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