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IBM’s Q3 2013 Revenue Miss May Offer You a Profitable Bargain
Posted by: Muhammad Bazil (IP Logged)
Date: October 24, 2013 04:42PM
It is no longer news that International Business Machine (IBM) released disappointing 2013 third quarter results. It is also no longer news that the stock has taken a beating since then from $186.73 per share it traded at the close of business just before the third quarter financials were released to the investing public on Wednesday, Oct. 16. The negative reactions of investors to the third quarter results were noticed during the extended hours of trading on that same day when the stock took a dip from $186.73 to $175.99 per share. That sudden dip in IBM’s stock price amounts to a loss of about 6% per share within a space of a few hours after the release of the third quarter results.
Really, IBM needs no introduction to a large number of the investing public because it is renowned as one of the blue chip companies with the best stock rating many love to own. In the last decade, IBM maintained a good rating as the only tech company that offered consistent yearly dividend increases. IBM is a tech company that has survived three eras of computing technology transitions. In the last two decades, the company has transitioned from the mainframe era to the PC era and now to the era of mobile computing technology where it is taking a foothold in the software and services line of business and declining its operations from being a pure hardware producing company.
In this article, I would try as much as I could to show to the investing public that IBM isn’t such a disappointing company as many investors have come to believe even with its 2013 third quarter results that missed revenue target.
IBM's 2013 Third Quarter Results at a Glance
In the first instance, IBM’s net income for the quarter rose by 6% to $4 billion. Also, the company’s earnings per share (EPS) of $3.99 for the quarter exceeded consensus’ estimate by 4 cents. Looking at the returns of IBM for the quarter under review, the revenues from two segments of the company [size=11.0pt;line-height:115%; font-family:"Calibri","sans-serif";mso-ascii-theme-font:minor-latin;mso-fareast-font-family: Calibri;mso-fareast-theme-font:minor-latin;mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman";mso-bidi-theme-font:minor-bidi; mso-ansi-language:EN-US;mso-fareast-language:EN-US;mso-bidi-language:AR-SA">— —<span style="]declined on a year-over-year basis but increases in revenues were reported in the remaining three segments: Software, Global Business Services and Global Financing segments. IBM’s $23.7 billion revenues for the quarter missed analysts’ consensus estimate of $24.8 billion by 4%. Revenue from IBM's Software segment increased by 1% to $5.8 billion and after adjustment was made for currency conversion, it rose by 2%. Revenue from IBM’s Global Business Services came in flat at $4.6 billion but rose by 5% when adjusted for currency conversion. Also, revenue from IBM’s Global Financing segment came in at $0.5 billion, up 6%, and it further increased by 9% after currency conversion.[/size]
On the other hand, revenue from the company’s Global Technology Services segment came in at $9.5 and at a loss of 4% compared with the 2012 third quarter results. The biggest decline in revenue was reported for IBM’s hardware segment (Systems & Technology) where the decline in revenue was a whopping 17% at $3.2 billion.
IBM’s Future Outlook and Valuation Metrics
Looking at the revenue figures, IBM’s total revenue for the quarter fell by about $1 billion or 4% in comparison with its third quarter revenues for the 2012 fiscal year. Now, considering that this missed revenue was the sixth in a row that the tech company released declining financials, it was not surprising that many investors rushed to dump their IBM shares before they could have enough time to review the third quarter results deeply believing that the company was heading for the rocks. However, since the company also declared an adjusted gross profit margin that increased by 1%, it could be said that IBM is on course towards achieving its projected financial growth in the long run.
Really, IBM is strategically working on decreasing its operations in segments such as hardware where it has been recording low margins and increasing its business activities in other segments like Software where it has been recording improved margins lately. In addition, the management of IBM has reaffirmed the company’s earnings per share (EPS) of $16.25 for the 2013 fiscal year which means that the company is on the right track towards achieving its multi-year goal of $20 EPS by 2015 fiscal year it projected for itself.
Currently, IBM is going through a transition which may be tough, but the company will get it right big time in the next couple of years or thereabout. Analysts’ latest rating for IBM was released by the Deutsche Bank on Oct. 17, a day after the third quarter results were released. Analysts from Deutsche Bank still reiterate a buy recommendation for IBM as they did in April but reduced the maximum entry price to $200. IBM is still a growth stock but at this point, only IBM shareholders who have enough strength to absorb the impending short-term market fluctuations on its shares may continue to hold the stock.
Stocks Discussed: IBM,
Re IBM s Q3 2013 Revenue Miss May Offer You a Profitable Bargain
Posted by: mocheng (IP Logged)
Date: October 25, 2013 09:55AM
page is broken, please fix.
Stocks Discussed: IBM,
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