IBM share price rallies on strong Q4: Where next?

IBM share price rallies on strong Q4: Where next?

Red Hat, which IBM acquired in July 2019 for US$34 billion, was able to turn in a Q4 revenue of US$573 million, down year-on-year from US$863 million pre-acquisition.

The company indicated that its revenue grew marginally on an annualized basis after a decline in five consecutive quarters. Don't forget that, in 2019, GAAP earnings per share were boosted by 2.7% thanks to help from the buyback.

In the fourth quarter, the company generated net cash from operating activities of $3.5 billion, or $6.7 billion excluding Global Financing receivables.

Looking ahead, IBM's management expects GAAP earnings to rise in fiscal year 2020, compared to $10.57 per share in the just-completed year.

IBM recorded a marginal increase of 0.1% in overall revenue to $21.78 billion in the quarter, its first rise in six quarters.

Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat; Cognitive Applications; and Transaction Processing Platforms) - revenues of $7.2 billion, up 8.7 percent (up 9.4 percent adjusting for currency), led by cloud, Security, and IoT; Cloud & Data Platforms, up 19 percent (up 20 percent adjusting for currency); Cognitive Applications, up 1 percent; Transaction Processing Platforms, up 3 percent (up 4 percent adjusting for currency). "And remember, we'll continue to face year-to-year headwinds from the divested businesses, especially in the first half, and our P&L will also still have an impact from the Red Hat non-cash purchase accounting adjustments, though less than 2019". IBM shares have been a laggard for some time, and I don't see how this report changes that narrative anytime soon. Storage systems showed growth but technology services revenue in the quarter fell 4.8%.

'We ended 2019 on a strong note, returning to overall revenue growth in the quarter, led by accelerated cloud performance, ' said Ginni Rometty, IBM chairman, president and chief executive officer.

With the cloud segment growing rapidly, IBM has provided a guidance of an operating non-GAAP EPS of at least US$13.35, a slight increase from the actualised FY2019 earnings.

What's the call on share price?

During the same quarter in the previous year, the firm earned $4.87 EPS.

Over the next five years, the International Data Corporation (IDC) expects enterprises to invest heavily in the cloud.

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the US print edition of The Wall Street Journal (January 22, 2020). A large and increasing portion of this investment will be on open hybrid and multicloud environments that enable them to move information across different environments.

Boosting IBM sales has been a hard task for Ms. Rometty since she took over in 2012 as CEO of the iconic tech company.

Several equities analysts have commented on IBM shares. BMO Capital Markets cut their price objective on shares of IBM from $157.00 to $152.00 and set a "market perform" rating on the stock in a research report on Thursday, October 17th.

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