IBM: Hopes High as Earnings Beat Estimates

  • Dividend Investments
  • 17 Days ago
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On Thursday, January 18th 2018, this Tech-giant hit a milestone. International Business Machines (NYSE: IBM) announced in its fourth quarter 2017 earnings release that they achieved a revenue growth after 23 successive declines in their year-ago quarter comparisons. This put IBM on a growth path that would complement its turnaround strategy.

The following financial metrics gives a clear idea of its performance:

  • Q4 2017 Revenue: $22.5bn ($21.77bn in Q4 2016)
  • 2017 Year-end Revenue: $79.1bn ($79.9bn in 2016)
  • Q4 2017 Earnings Per Share: $5.18 ($4.73 in Q4 2016)
  • 2017 Operating Earnings Per Share: $13.80 ($13.59 in 2016)
  • Free Cash Flow: $13bn ($11.6bn in 2016)

The Q4 2017 revenue and EPS was greater than the analyst estimates of $22.06bn and $5.17.  Revenue from Strategic imperatives was $36.5bn in 2017 – representing 46% of total revenue and was 11% higher than 2016. The Systems segment which includes hardware and systems software was up by 32% due to growth in Power Systems and storage and IBM Z. Due to the Tax Reform, IBM had to bear a one-time charge of $5.5bn in the fourth quarter.

Strategic Imperatives is the new word in town for International Business Machines (NYSE: IBM). An organization that has redefined its core legacy businesses is banking on its new outlook in areas such as cloud computing, artificial intelligence and data security. In IBM, these new initiatives and business operations are called Strategic Imperatives.

Stock Prices

Source: Google Finance

The IBM stock fell down by 18% in 2017 (from $180 in February to $153 in December) and it has been 4 and half years since the stock has seen $200. The main reason for the falling stock can be attributed to the revenue declines from $100bn in 2012 to less than $80bn since 2016. Even though certain business segments are growing, but others are falling and hence the stock prices are overall decreasing and dragging along. In July 2017, the stock fell below $150, but then quickly picked up in October 2017.

The stocks of Intel Corporation and Microsoft have been increasing and hence IBM stock can be termed as a cheap stock to buy. 2018 will possibly witness a restructuring of its legacy businesses like software and IT services. For investors, the coming year can see the stocks improving. Majority of the analysts have given a ‘Hold’ rating to the stock.

Dividend Payout


The dividend amount has been growing for the past 22 years; thus technically falling short of 3 growth years to be called as a Dividend Aristocrat. The dividend has an annualized growth rate of 11% and per share dividend has grown exponentially by 2,300%. Even though the stock has been plummeting, the dividend payout has been increasing.

As of 2017, IBM has a dividend yield of 3.9% with an annualized payout of $6 (quarterly payout of $1.5). With the adjusted earnings at $13.80, the dividend payout is less than 50%. Even though the year-end revenues have been on a decline, IBM has a solid free cash flow of $13.4bn. Since dividends only made up 31% of that cash flow, investors can be sure that IBM dividends are relatively safe.

How does IBM compare with other tech giants?

Source: NASDAQ

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One thought on “IBM: Hopes High as Earnings Beat Estimates

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