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Summary

  • Q2 2014 EPS reported of $4.32 per share is up 28% yoy.
  • Q2 earnings have confirmed my earlier opinion of the stock.
  • IBM reaffirmed 2014 guidance of $18 per share and 2015 guidance of $20 per share.

International Business Machines (NYSE:IBM) reported earnings today that were roughly in line with EPS and revenue estimates. EPS came in at $4.32, which was 3 cents over analyst estimates. Revenue came in at $24.36 billion, which was $230 million above estimates. Although it beat analyst estimates, IBM reported revenues that were down about 2% from the year-ago period.

IBM maintained its forecast of $18 per share EPS in 2014. IBM had previously forecast $20 per share EPS in 2015, and that figure appears to still be on track. Thus, the stock is currently selling at a forward 2014 P/E of about 10.5 and a forward 2015 P/E of about 9.5.

In my previous article about IBM titled, "IBM: Worth $260 Per Share", I showed just how cheap a stock I felt IBM to be. It is still very cheap, and this recent earnings report reaffirms my view that the stock has at least 30% upside in the next year or so. The company is expected to grow EPS more than 10% from 2014 to 2015. Some revenue growth is all that is needed as a catalyst to send the stock upwards and into a P/E valuation more appropriate. Consider this: if the stock had a forward 2015 P/E of merely 13, it would hit my price target. Such a forward P/E would not be out of the historical norm:

IBM PE Ratio (Forward) Chart

IBM PE Ratio (Forward) data by YCharts

Source: Update: IBM Earnings