IBM (NYSE:IBM) has unveiled Big Data analytics software to analyze the massive amounts of data that most enterprises need to maintain a global workforce. The product will also allow the organizations to understand what drives a company's job performance. In this article, I want to show how a rising analytics services market will enable the new product to help the IBM business analytics division record a 5% revenue increase by the end of the year. This factor will enhance the price multiples of the organization.
How will the sales growth be achieved? Many organizations are rebelling against a static view of their workforce. Consequently, they are looking for the analytics services solutions to build a more productive work environment. In its global business analytics services outlook, the International Data Corporation forecasts a five-year compound annual growth rate of 14.3% for the global business analytics services sector. The spending in the sector is estimated to reach $70.8 billion by 2016. The new product of IBM will benefit because it is analytics software to help numerous companies plug into the pulse of their organization. This development will help the new product make good sales and improve the price multiples of the IBM business analytics division.
The IBM business analytics division is certain to record a sales growth. In the first quarter, the revenue of the division rose 7% year-on-year. In the fourth quarter report, the full-year revenue of the business analytics division rose by 13%.
The IBM Business Analytics Division
The tech giant's initiatives in the analytics services sector are numerous. The company developed the IBM Survey Analytics Services for an automatic display of unstructured data from its employee surveys. The company developed a Retention Analytics Services to provide an efficient approach to understand the attrition patterns within a business and help to determine the action to retain the talents in an organization.
The newly introduced big data product will help many organizations to gain a more accurate view of their operations. It will also create a strong and engaged workforce that is able to cope with the challenges of globalization. "Companies that invest in Big Data and analytics to nurture their workforce will keep the best talent and distinguish themselves from their competition," said Dr. Bob Sutor, VP, Business Analytics and Mathematical Sciences, IBM Research.
IBM needed to develop the new product to meet its full-year 2013 operating earnings per share target of at least $16.70. Fortunately, the business analytics division is a growth area for the company. It is important for IBM to make it efficient if the company is to gain a head start over its competitors.
Looking at the IBM's financial report, we noticed that the business analytics division showed an impressive growth year-on-year. So it can be said that it is run efficiently.
With a price to sales of 2.25, IBM is trading cheaply, even though it has a gross margin of 45.62%. The new product will increase the revenue of the business analytics division by at least 5%, improve the revenue of the company's services division, and increase the net income of IBM. The company's investors will benefit from a robust growth.
With an EPS of 14.50, compared with 1.80 for Cisco (NASDAQ:CSCO) and -6.85 for Hewlett Packard (NYSE:HPQ), a price to earnings ratio of 14.35, compared with 13.40 for Cisco and none for Hewlett Packard, IBM is doing well. Cisco and Hewlett Packard have a line of many data analytics products and will be competing with the IBM solution in the market place. Despite the quality of their solutions, IBM will benefit from the investments it has made in developing the Big Data Analytics software and service.
There are risks involved with holding to the stock. The share price of IBM only recently recovered from the loss it incurred in April following the announcement of the earnings result. Also, the stock is trading near to its 52-week high of $215.90. However, based on the performance of the analytics division, the growth prospects, and the quality of the new product, we can say IBM will record a revenue increase by the end of the year. Looking at the company's price multiples and its buoyant net income, we can say it is good to HOLD the stock for the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.