IBM stock forecast: Where now for Big Blue?

IBM has had a good 12 months, but what’s the IBM stock forecast?

International Business Machines Corp

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Contents

• IBM’s recent history
• IBM quarterly results: Somewhat disappointing
• IBM quarterly results: Finding reasons
• The markets respond
• IBM stock forecast
• FAQs

IBM, the computing giant, has recovered from a tough year in 2020 to grow in 2021, but with market pressures happening, how is Big Blue set to respond, especially with an upcoming company split? Let’s take a look at what has been going on, and see if we can make some kind of IBM stock forecast.

IBM’s recent history

IBM’s latest results need to be taken in the context of the previous quarter, which was a successful one. In the three months ending 30 June, revenues came in at $18.75bn, up 3% on a year-on-year basis and easily more than the $18.29bn that analysts Refinitiv’s average estimates, while adjusted earnings per share were $2.33, ahead of the Refinitiv predictions of $2.29. 

One move that bolstered IBM’s performance was the split that was announced in October 2020. The company’s legacy IT infrastructure support services will be hived off as a separate company called Kyndryl at some point in November, with IBM now set to focus on cloud computing and artificial intelligence. 

IBM quarterly results: Somewhat disappointing

With that in mind, the latest quarterly results, which came out on 20 October were perhaps not as good as they could have been. Revenue was up 0.2% to $17.6bn. Of that revenue, the money coming in from the company’s cloud and cognitive software division was up 2% and the revenue from the global business services department was up 11%, contributing around $4.4bn. The company did try to put a more upbeat spin on things, saying that if the departments covered by Kyndryl were ignored, as they would be from the next quarter onwards, revenue was actually up 1.9%. Regardless of how IBM wanted to calculate things, the bare facts are that the $17.6bn revenue generated in the quarter fell short of what experts had predicted the company would do. CNBC reported that analysts Refinitiv had predicted revenue would come in at $17.77bn. 

There were some parts of IBM’s business that performed very poorly, though. Revenue from global technology services was down by more than 5% year-on-year, while infrastructure & cloud Services fell by 6%. Meanwhile, Technology Support Services was down 5% and cloud revenue overall was flat.  

The amount of cash the company actually held was also down. It finished the quarter with $8.4bn, a fall of $5.9bn from the end of. IBM said the drop this was down to acquisitions of $3bn and ongoing debt reduction payments. Net income was also down by 33% with IBM’s gross margin shrinking to 46.4% from 48% in the previous quarter. Diluted earnings per share was $3.77 down 20% year-on-year to $4.72. 

IBM quarterly results: Finding reasons

In an earnings call, IBM CEO Arvind Krishna acknowledged that the results “fell short of our expectations” but hoped that structures were in place to make things better, arguing that some customers were holding off doing business until the Kyndryl separation had come into full effect, and that the split would ultimately be beneficial.

“We took structural actions to improve the profit profile. The management team is in place. Employee transfers and the vast majority of client contract innovations are complete. We are now even more certain that separating this business creates value through focus.”

In the same call, IBM CFO Jim Kavanaugh tried to explain away the company’s systems revenue dropping around 12% to $1.11bn, saying: “Our revenue was down. Late in the quarter, we began the rollout of our next-generation Power10 starting with high-end system. As always, new Power technology is introduced over time, and the mid-range and low-end Power10 systems will be available during 2022.”

The markets respond

When the markets reopened on 21 October, they were very much unimpressed by IBM’s latest results. The IBM stock price when trading finished on 20 October, before the results came out was $141.90 When trading started up again the next day, the IBM share price was $133.40, representing a drop of just under 6% overnight. 

Overall, IBM has grown by a not inconsiderable margin over the course of the last 12 months. The IBM share price stood at $116.66 at the start of trading on 21 October 2020, meaning a rise of more than 14% over the course of 12 months, regardless of how much the price dropped after the latest set of results came out. The challenge for IBM in terms of its investors will be how it can weather the storm and come out to deliver growth. How investors react to Kyndryl will be a crucial issue and it will be worth keeping an eye for both IBM and its offshoot to see how their results link up and whether the split, once it is finalised, allows IBM to carry on its upward journey. Nothing is set in stone, though, and while Krishna has given a date of 3 November, we will only know for certain once it has actually happened. 

IBM stock forecast

When it comes to the future, there is still some uncertainty in the IBM stock price forecast. When CNN Money surveyed 14 analysts for their IBM stock predictions for the next year, the results were mixed. While the most optimistic 12-month prediction saw the IBM stock price go up by an impressive 24.2% from where it was at the close of trading on 20 October, there was some opposition. The most negative forecast for a year’s time saw it trading at 11.5%, a fall of 18.9% from recent levels. Overall, the median IBM share price forecast for the next year was $149.50, indicating a somewhat modest rise of 5.5%.

In terms of what people should do with IBM stock, there was a definite air of caution from analysts. CNN Money surveyed 17 experts for their recommendations, and the majority – 10 – suggested holding onto the stock. Five people recommended buying IBM stock, while one recommended selling it. One analyst thought that IBM would underperform against expectations, while no one said it would overperform against expectations over the next year or so. 

FAQs

Further reading

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