IBM Q4 Earnings Preview: Cloud Growth In Focus After Legacy Unit Spinoff
Investing.com | Jan 24, 2022 01:53
- Reports Q4 2021 results on Monday, Jan. 24, after the market close
- Revenue Expectation: $16.07 billion
- EPS Expectation: $3.30
When International Business Machines (NYSE:IBM) reports fourth quarter earnings later today, investors will focus on the information technology services company’s efforts to turn around its business after years of underperformance.
Unlike major tech competitors such as Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), IBM has failed to attract investors who have found the 109-year-old company too slow to evolve from its legacy IT businesses.
To change that perception and to revive growth, the Armonk, New York-based IBM is in the middle of a major restructuring. During the past quarter, the company completed the spinoff of its $19 billion information technology services business, Kyndryl Holdings (NYSE:KD), as part of Chief Executive Arvind Krishna's push to focus on cloud computing where major growth is happening.
The separation has capped IBM’s fourth major transformation and cemented its pivot away from slower-growth mainframe computing and IT services. In another move, IBM agreed InvestingPro’s model , IBM stock’s fair value is around $183, implying about 42% upside potential.
This month, Goldman Sachs initiated coverage of IBM, providing a neutral rating, but said the company is well positioned for accelerating transformation spending ahead. Its note said:
“We believe IBM is well positioned for better growth, profitability, and sustainable shareholder return with elevated enterprise transformation demand anticipated ahead.”
In our view, IBM is a safe dividend stock, especially after the clear shift to cloud computing—a high-growth business—the company's new management has championed. These steps are encouraging and could unlock the value of IBM stock, which has hiked its dividend for 26 years straight.
The stock currently pays $1.64 a share quarterly dividend, which translates into a 5.27% annual yield, making it one of the highest-yielding dividend stocks among blue chip companies.
Bottom Line
IBM may not produce a big surprise when it reports later today, given its uneven performance amid major restructuring. Still, we see the company slowly getting back on a path to growth.
Its healthy balance sheet, manageable debt and robust dividend yield of more than 5% make this stock a bet worth considering, especially when its turnaround is gathering pace.
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