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Monday, Oct 7
Barclays' IBM downgrade: Firm worried about cash flow, cloud threat
- Barclays' Ben Reitzes, who cut IBM (IBM -0.8%) to Equal Weight this morning, says Big Blue overstates the amount of free cash flow it generates by excluding global financing receivables. Whereas Reitzes thinks IBM will produce $14.85/share in FCF based on the company's own metrics, he sees the company producing only $12.34/share (well below a $16.89 EPS consensus) if traditional metrics are applied.
- Like others, Reitzes also sees the impact of the cloud migration being much greater than the dollar value of deals that are being signed. "Each dollar spent in the public cloud arguably means that multiple dollars are not spent ... to duplicate that capability on premise ... With each customer that deploys [SaaS or IaaS], future revenue streams from IBM become more difficult to tap."
- He's pleased IBM has acquired SoftLayer to help address the cloud threat, but cautions the cloud infrastructure service provider's code base needs to be modified to be compatible with IBM's existing offerings.