International Business Machines(IBM) is an American multinational technology company with a wide range of hardware and software solutions offerings. I am bullish on the stock.
Q4 Results Show Cloud Strength
IBM beat its Q4 estimates last month with 6% year-over-year revenue growth. The firm’s cloud and software business unit generated revenue worth $7.27 billion, an 8% annual increase.
According to the company’s CEO, Arvind Krishna: “The trend we are seeing is clear,” and there is “high demand for our capabilities in several areas.”
The cloud computing space is maintaining its trajectory towards a CAGR of 15% until 2032. IBM has tapped into the market, which could pivot its business after broad-based revenue has declined by an average of 10.35% over the past three years.
Insider Buying
Insider transactions refer to internal management’s trading of the stock. During the past quarter, IBM’s management bought a cumulative of 9.9K shares, signaling a bullish tone from within the company.
Insider transactions are a helpful way to gauge the company’s future financial performance as you’re essentially looking at the internal consensus of performance. There’s no guarantee that the expectations will come to fruition, but it definitely is a valuable metric, in my opinion.
Dividend and Valuation Analysis
IBM has a forward dividend yield of 5.3% after announcing a $1.64 dividend per share after its fourth-quarter earnings report.
IBM generated $12.8 billion in cash from operations in the past 12 months, with a return on equity of 23.9%, suggesting that the firm has plenty of capacity to sustain dividend payments to its shareholders.
Furthermore, IBM stock is currently undervalued relative to its sector peers, with its non-GAAP price-to-earnings ratio trading below the sector average by 41%. Moreover, the stock’s price-to-sales and price-to-cash-flow ratios are also trading at discounts worth 46% and 58.3%, respectively, suggesting that the market hasn’t quite priced the asset’s potential just yet.
Wall Street’s Take
Turning to Wall Street, IBM has a Moderate Buy consensus rating, based on six Buys, six Holds, and two Sells assigned in the past three months.
The averageIBM price targetof $147.23 implies 20% upside potential.
Concluding Thoughts
IBM is on firm ground as its cloud software business has excelled. The stock is currently relatively undervalued, and its dividend-paying capacity remains solid.
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