IBM Has Got The Blues

| About: International Business (IBM)

International Business Machines Corp. (NYSE:IBM) is known as one of the premier big data companies. Up until this year, IBM's share price was on a tear. It was one of the only stocks that continued to grow earnings during the financial crises and was one of the first Dow stocks to reclaim its 2007 highs. It also has the title of being one of the few tech stocks that trade above its tech-bubble high. Recently Big Blue's shares have been beaten down and are sitting at the bottom of the Dow Jones totem pole for the year. Much of this decline has come from its recent earnings report and a sentiment change from investors.

Some highlights from its recent report include a $1.07 billion revenue miss with EPS of $3.99 for Q3. IBM's sales to growth markets fell 9% Y/Y in the quarter, with BRIC markets sales falling 15% and Chinese sales falling 22%. Services backlog was $141 billion for the quarter's end with a revenue decline of 4% Y/Y. Hardware also fell 17%. With all of this said IBM is still guiding for 2013 EPS of $16.90. IBM is only able to maintain full-year EPS guidance because of a lower tax rate boost.

The company has a good balance sheet with $10.36 billion in cash and $34 billion in debt and trades at just 11.5 times this year's earnings. While IBM appears cheap by these metrics and famous value investor Warren Buffett is a current shareholder, a similar story unfolded with Hewlett-Packard (NYSE:HPQ) a few years ago. IBM looks like it's almost following in its footprints. Although IBM made the right move in selling its PC business to Lenovo, IBM's business segments are similar enough to Hewlett-Packard that investors should have seen this coming. Much like Hewlett-Packard once gloated about when it was trading above $40, IBM has been buying back enormous amounts of stock and is currently under water with many of its recent purchases. IBM is also trimming its workforce significantly, much like Hewlett. At this point it seems nothing else matters to IBM but its EPS numbers.

I don't blame IBM's recent fumble on its new CEO. IBM's culture of stock buybacks begun way before her with shares outstanding declining every year for the past decade going from 1.69 billion shares in 2003 to under 1.1 billion today. Competitors have also cited slowing within their business. Most recently Teradata (NYSE:TDC) warned of a bad quarter and big declines in places outside of America and Europe.

IBM has big visions for the upcoming years. It expects 50% of its profits to come from software by 2015. It also expects another $20 billion in acquisitions. This would add to IBM's buying spree of over 140 companies since 2000. It also expects to reward shareholders by paying out another $20 billion in dividends and buying back an additional $50 billion through share repurchases (big surprise).

I truly believe IBM will get very close to earning $20 per share by 2015, but it certainly won't be through robust growth. I would prefer those who want similar exposure to the industry buy EMC or Oracle (NASDAQ:ORCL). Both companies provide the same safety as IBM and similar dividends. While IBM has a history of over 100 years and has time and time again changed with the market, I'm simply not willing to purchase shares at these levels. I'd be more inclined to look at IBM from a value perspective at $160.

Disclosure: I am long EMC. 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.

Additional disclosure: I am short EMC puts