From other sites
at Investor's Business Daily (Fri, 5:33PM)
at MarketWatch.com (Fri, 1:31PM)
at CNBC.com (Fri, 12:45PM)
at MarketWatch.com (Fri, 11:57AM)
at CNBC.com (Fri, 11:17AM)
at Nasdaq.com (Wed, 3:03PM)
at Zacks.com (Wed, 12:42PM)
at Zacks.com (Wed, 10:58AM)
at CNBC.com (Wed, 8:10AM)
at CNBC.com (Wed, 7:04AM)
IBM: Capital Returns To Shareholders Aren't Financial Engineering
- Financial engineering is an overused term when a company does a large-scale stock buyback program.
- The weak results of IBM are well documented, but the FCF remains strong compared to the market valuation.
- The recent 15% net payout yield is a strong buy signal.
Financial Engineering Is Not A Bad Thing - As Long As You Are Aware Of It
- While Apple and IBM have both borrowed money to repurchase shares, their share prices have moved in different directions.
- While Apple's sales continue to expand, IBM's revenue has declined consistently going back several quarters.
- Financial engineering is a beneficial practice for companies that can obtain inexpensive debt financing and return the proceeds to shareholders.
- However, financial engineering is unsustainable over the long term and will become especially problematic when the U.S. Federal Reserve starts to raise interest rates.
- Individual investors should investigate companies carefully to ensure they can recognize when this type of financial engineering is present and make investment decisions accordingly.
- IBM is seen as a value company and is trading off its free cash flow.
- IBM is piling up patents in graphene-related technology to bolster its server capabilities.
- IBM has many similarities in how it is run to Google, but IBM's market valuation is significantly lower.
- Many critics of IBM have been focusing on the company's difficulty transitioning to the cloud, and poor stock price performance this year.
- The company, however, has spent $19.2 billion repurchasing its stock in the past year, and has grown earnings by a double-digit amount over the course of 2014.
- Warren Buffett specifically desired strong buybacks at low prices in his letter to shareholders, and his desire has been coming to fruition with IBM over the course of 2014.
- 2014 is coming to an end and it is time to pick some winners for 2015. I offer my top two picks.
- IBM is my favorite mega-cap stock poised for a turnaround in 2015 based on improved cloud offerings, recent partnerships with other tech giants, and exciting new technologies such as Watson.
- ERII is my favorite small cap stock for 2015 because of the potential to gain market share with new products that have no competition and provide compelling value to customers.
- IBM has been in freefall for better than three months.
- The company is directionless after decades of the same broken strategies.
- I think shares still have substantial downside potential as EPS estimates for the future continue to erode.
- On the surface, IBM has nothing but problems, but fortunately, it is priced as such.
- IBM's losses have been significant, but could've been worse, a fact that aids in the reason it could trade higher.
- IBM has never been a stock that showed on the radar of high-yield investors, until now.
- IBM is trading at very low multiples at the moment following a brutal post-earnings selloff.
- To some degree, the valuation is justified due to the company's poor results recently.
- For those betting on a turnaround, the stock is a bargain at the moment, but there is as of yet no evidence of this.
- There is a hot potato being passed around at IBM. It is called goodwill.
- Goodwill has grown from less than 1% to more than 25% in the last fourteen years.
- IBM’s shareholder value is a negative $8 billion without goodwill - one intangible asset.
- It took forty-two years for Tom Watson Sr., IBM’s traditional founder, to get goodwill off the books.
- This is a prime example of IBM’s financial engineering.
New IBM, Cisco Data Center Partnership: Details, Analysis
- VersaStack Solution Combines Cisco UCS, IBM Storwize.
- Similar to Cisco, NetApp Relationship.
- Over Time, Optimized for IBM Business Applications.
- Competes With HP, Oracle, Dell Alternatives.
- The recent selloff makes IBM attractive for the long-term based on its FCF and future share buybacks.
- With Warren Buffett as the company’s largest shareholder, it’s tough to not own IBM.
- The recent quarter disappointed investors, but the long-term story remains intact.
Cloud Deals To Boost IBM's Global Services Revenues
- IBM has been systematically reducing its dependence on hardware business and increasing its focus on cloud computing services.
- In the past month, IBM has signed three multi-billion dollar deals in the European region.
- IBM's GTS and GBS divisions together make revenues of nearly $57 billion and account for 32% of its estimated value.
- WPP deal: More IT services than cloud.
- Thomson Reuters deal: Mostly IT services.
- ABN AMRO deal: Mainframe, IT infrastructure mixed in.
- Bottom line: Actual cloud revenues are unclear, but that may be the point.
- IBM is signing "baseball" contracts, using length to increase the apparent size of the deals.
- These are "outsourcing" contracts, not real cloud deals. They are replacement revenue.
- To grow IBM needs to create new markets, not serve its old markets for less.
- IBM may be focusing on the short-term increase in its stock price a bit too much.
- The fact that IBM is using debt to repurchase shares to increase the stock price is a bit unsettling because the underlying business is not doing so well.
- Leverage is a double-edged sword, too much of it can ruin a company when used incorrectly.
- I have two suggestions on what IBM can due to get back on track.
IBM: Valuation Scenarios Using The Dividend Discount Model
- After a sharp pullback to the $161 level, concerns regarding earnings forecasts are growing at IBM, with the recent abandonment of a 2015 forecast.
- Using the dividend discount model, I forecast a range of price targets for the company using 5%, 10%, 15% and 20% scenarios.
- I argue that investors should look for at least a 15% growth in DPS (dividends per share) and EPS (earnings per share) to justify buying at the current price.
- IBM is now dirt-cheap, priced at a fraction of its key competitors in technology.
- The history of the company shows it needs a strong entrepreneur to succeed.
- Activist investors can have a field day here, and you should join them.
Fri, Feb. 7, 4:38 AM
- IBM (IBM) is considering a sale of its semiconductor manufacturing operations, which produces chips for its high-end servers and for external customers, the WSJ reports.
- However, IBM would keep its chip-design operations; alternatively, according to an earlier FT article, IBM could keep the whole business and seek a partner with which to create a joint venture. The FT reported about the prospective sale but didn't distinguish between the production and design parts of the division.
- There was no word on the value of the business, although Bernstein reckons it earned revenue of $1.75B in 2013 and made $130M in pretax losses.
- The reports come after IBM said last month that it had agreed to sell its low-end server division to Lenovo for $2.3B.
- Evisioneering analyst Rick Doherty said he'd be "shocked" if IBM did sell the semiconductor operations. "Take away the Silicon part, and IBM may not be the tech giant it is 10 years from now," Doherty said.
- However, the business has become a less important part of IBM’s operations in recent years, as the company has expanded its software and services activities.
Fri, Jan. 31, 9:37 AM
- Twitter (TWTR -1.2%) has bought 900 patents from IBM (IBM -0.9%) for an undisclosed sum. The sale, along with an attached cross-licensing agreement, ends an IP dispute between Twitter and IBM related to patents the latter believed the former was infringing.
- In prior years, IBM has sold 750 patents to Facebook, and over 2K patents to Google. The company has consistently topped U.S. patent grant rankings for two decades, and is believed to generate ~$1B/year in patent licensing revenue.
- The deal shores up Twitter's relatively paltry IP portfolio, a portfolio that some have considered a business risk. Twitter, through its Innovator's Patent Agreement, has promised it won't use patents created by its own engineers/designers for "offensive litigation" without their creators' consent.
Tue, Jan. 28, 4:01 PM
- Sources tell re/code IBM (IBM -0.5%), fresh off selling its x86 server unit to Lenovo, is thinking of selling its software-defined networking (SDN) unit.
- Big Blue is reportedly asking for as much as $1B, a figure one exec calls "pretty optimistic." The company is said to have informally approached Cisco, Dell, H-P, Juniper, and Fujitsu "to gauge interest." Cisco, Juniper, and H-P have each already launched a slew of SDN-related products.
- SDN, a relatively new technology/concept. shifts network intelligence and provisioning capabilities to software-based controllers. By doing so, it aims to improve provisioning times and resource efficiency, and allow proprietary switches to be replaced with commodity/white-label gear; that last feature has many Cisco investors on edge.
- Back in 2012, VMware paid ~$1.2B for Nicira, widely considered the early leader in the SDN software space.
Tue, Jan. 28, 12:46 PM| Comment!
Fri, Jan. 24, 7:27 AM
- What was the CEO of a company you're an owner of up to this week? An index of companies whose execs regularly attend Davos has vastly underperformed the market since 2009.
- Attendance at the gathering tends to be dominated by the financials, with GS, C, HSBC, JPM, LAZ, MS, SCBFF, BAC, ITUB, and UBS leading the way to prove their bona fides as thought leaders. Also spotted were the heads of DOW, and PEP.
- Notably absent: Buffett (BRK.A, BRK.B) , Tim Cook (AAPL) (Jobs never attended either), Jeff Immelt (GE), and Virginia Rometty (IBM). Google's (GOOG) founders and Mark Zuckerberg (FB) stopped going a couple of years ago.
Thu, Jan. 23, 4:10 AM
- As flagged, IBM (IBM) has agreed to sell its low-end x86 server business to Lenovo (LNVGY) for $2.3B, of which $2B will be in cash and the rest in stock.
- IBM and Lenovo will also form a partnership that will include a global OEM and reseller agreement for various IBM products, including its entry and mid-range Storwize disk storage systems.
- Around 7,500 IBM employees will be offered jobs at Lenovo.
- "This divestiture allows IBM to focus on system and software innovations...such as cognitive computing, Big Data and cloud," says IBM's Steve Mills.
- The deal comes after IBM's hardware division suffered another wretched quarter in Q4, with x86 sales dropping 16%.
- The question is whether U.S. security concerns will cause a delay to the transaction or cause it to be blocked. (PR)
Wed, Jan. 22, 7:58 AM
- "Disappointing" is the theme as the sell-side comments on IBM's Q4 results from last night.
- "No near-term relief" is the title of Deutsche's note (and Deutsche is a bull on the stock). The company is likely to remain in the "penalty box" until it can show evidence of stability in hardware and improved execution in emerging markets and China.
- Investors will likely mull over whether IBM will need to reset the 2015 Roadmap this spring, says JPMorgan, expecting shares to be under pressure near-term and lowering the PT to $175.
- Credit Suisse reiterates its Sell rating and $160 price target on the weaker-than-expected numbers.
- Shares -3.2% premarket
Tue, Jan. 21, 6:27 PM
- IBM, which has already carried out a string of job cuts in recent quarters, expects to record a fresh $1B workforce rebalancing charge in Q1.
- The news follows a quarter in which a 5.5% Y/Y revenue drop led IBM's SG&A spend to rise to 21.6% of revenue from 20.2% a year earlier, and its R&D spend to rise to 5.7% of revenue from 5.4%.
- In addition to its huge buybacks, much attention is being given to the role an 11% tax rate (down from 16% in Q3) played in boosting IBM's earnings. Fund manager Mike Bergen estimates EPS would've been $0.80 lower if Big Blue's tax rate was at the 23% level expected by analysts.
- Software (+3% Y/Y) was a relative bright spot, thanks to healthy middleware (+15%) and database (+5%) sales. "Cloud revenue," a catch-all phrase covering a variety of hardware, software, and services sales, rose 69% Y/Y to $4.4B, boosted by the SoftLayer acquisition.
- 2013 free cash flow was $15B, less than net income of $18B. IBM ended Q4 with $11.1B in cash, and $12.2B in non-global financing debt. CEO Ginni Rometty insists IBM is on track to hit its 2015 EPS goal of "at least" $20.
- IBM -2.9% AH. More on IBM's Q4.
Tue, Jan. 21, 4:24 PM
- IBM has established 2014 EPS guidance of $18, slightly above a $17.97 consensus.
- Revenue continues to be pressured by nosediving hardware/chip sales, which declined 26% Y/Y in Q4 after dropping 17% in Q3 and 12% in Q2. Mainframes -37%, Power servers (UNIX-driven) -31%, x86 servers (reportedly on the block again) -16%, storage -13%, chips -33%. The numbers suggest share loss to H-P, Dell, TSMC, and others.
- Global Technology Services revenue -4%, same as Q3 and Q2. Global Business Services +1%. Services backlog is at $143B, +1% Q/Q and +2% Y/Y. Software +3% vs. +1%, global financing flat vs. +6%.
- $5.8B was spent on buybacks, up from $1.9B in Q3 and providing a big lift to EPS. Gross margin, which has been steadily rising in recent years, rose 30 bps Y/Y to 52.6%.
- Asia-Pac sales, pressured by NSA fallout, were soft again, declining 12% Y/Y; they dropped 15% in Q3. Americas fell 3%, and EMEA was up 1%. Sales to "growth markets" declined 5% after falling 9% in Q3.
- IBM -2.2% AH. CC at 4:30PM ET.
- Q4 results, PR
Tue, Jan. 21, 4:07 PM
Tue, Jan. 21, 12:10 AM
Mon, Jan. 20, 9:58 PM
- Lenovo (LNVGY, LNVGF) is in talks to buy IBM's low-end x86 server business, and a deal could be signed within weeks, Bloomberg reports.
- The two companies were said to be negotiating a deal for the division last year, but no agreement was reached on a price.
- Lenovo said today it’s in preliminary discussions on some kind of possible acquisition, but it did not identify the target or seller.
- Dell also may be among potential buyers, but it's not clear how seriously it is considering an acquisition.
Mon, Jan. 20, 5:35 PM
Mon, Jan. 20, 4:50 AM
- IBM (IBM) is again exploring a sale of its low-end x86 server business, the WSJ reports, with Dell a potential a suitor.
- IBM was in talks to sell the unit to Lenovo in Spring last year, but negotiations broke down over price. The Chinese company valued the operations at less than $2.5B.
- The latest report comes after sales of IBM's x86 servers fell 18% on year in Q3 in what was a tough overall year for the company's hardware division.
Fri, Jan. 17, 4:32 AM
- IBM (IBM) intends to invest over $1.2B on up to 15 new data centers across the world as part of its strategy to expand its cloud services.
- The scheme will bring the number of centers that IBM operates to 40 and will double the capacity of SoftLayer, which rents online storage space to companies. Since IBM acquired the Dallas-based firm for $2B last year, it has gained 2,400 new clients.
Thu, Jan. 9, 4:56 AM
- IBM (IBM) plans to invest over $1B to establish a new business unit for its Watson supercomputer, which the company apparently hopes will generate $10B within 10 years.
- The money will include $100M for a venture-capital fund to spark more activity at the Watson Developers Cloud after IBM opened it up to external programmers last year.
- The company plans to boost the headcount at IBM Watson Group to around 2,000, with many of the new recruits to be salespeople and consultants who will assist customers in working out how to use Watson.
- The news follows a report that IBM has had trouble making money from Watson - the initiative had brought in less than $100M as of October, due to various projects going awry or proving to be far more difficult than expected.
IBM vs. ETF Alternatives
International Business Machines Corp is an Information Technology (IT) company. It creates business value for clients and solves business problems through integrated solutions that leverage information technology & knowledge of business processes.
Other News & PR