IBM stock rises on improving earnings outlook
The tech giant’s earnings beat estimates — here’s what fueled Wall Street’s optimism toward the stock.
IBM shares climbed 7.7% to $139.10 after the company reported first quarter earnings that beat estimates. The company also painted a rosier outlook ahead, boosting the stock’s investment appeal. IBM’s first quarter adjusted earnings jumped 25% to $1.40 per share, beating the average analyst estimate of $1.38. Revenue from continuing operations expanded 8% to $14.2 billion. “We are off to a solid start for the year, and we now see revenue growth for 2022 at the high end of our model,” Arvind Krishna, IBM chairman and chief executive officer, said. “Even if GDP falls to flat or if there’s a quick recession or if it’s a very slight recession, we see demand staying strong and continuing,” according to a transcript of the company’s call with analysts published by The Motley Fool.
What to consider if you’re thinking of adding IBM to your portfolio
The company sees an additional 3.5 point contribution in 2022 from incremental sales to Kyndryl, which was separated from IBM in November 2021.
IBM also benefited from the battle for talent. Companies struggled to hire, opening an opportunity for IBM’s consulting services to fill the void. That segment — which includes business transformation, technology consulting and application operations — posted a 13% increase in revenue to $4.8 billion.
“We think peers’ unmet demand may be trickling down to IBM,” Julie Bhusal Sharma, an equity analyst at Morningstar, said in a note. “This means that in the long term, once the talent market eases, such consulting strength could be less sustainable for IBM.” Sharma believes the shares are now fairly valued after the rally. Still, the stock offers benefits at a time when the market has been shaken by fears of a recession. IBM paid a quarterly dividend of $1.64 per share in March. Based on that and today’s share price, the dividend yield is about 5% — more than triple the 1.33% payout you’d get from holding an exchange traded fund tracking the S&P 500 index. Three of the four analysts who updated their ratings after the results were released maintained their current buy recommendation on the stock, while the other one kept a market perform view, which means a neutral rating. The average target price from 19 analysts tracked by Yahoo Finance is $143.26, indicating expectations of an extended rally for a stock that’s already risen about 10% in the past five days. At the time of publication, Luzi Ann Javier doesn’t own shares of any equities mentioned in this story.
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