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International Business Machines Corporation (IBM - Free Report) returned to revenue growth for the first time in 23 quarters in the fourth quarter of 2017 and maintained that momentum in the first quarter of this year. The company’s adjusted earnings per share came in at $2.45 (up 4% year over year), beating the Zacks Consensus Estimate of $2.40.
The company saw revenue figures of $19.1 billion, surpassing our consensus estimate of $18.72 billion. Revenues grew 5% in Q1 and 0% adjusted for currency (read: Play IBM's Turnaround Story With These ETFs).
First-quarter revenues for strategic imperatives grew 12% (up 10% adjusting for currency). Cloud computing revenues were up 22% (up 20% adjusting for currency). In the first quarter of 2018, revenues from analytics grew 9% (up 4% adjusting for currency), mobile increased 19% (up 14% adjusting for currency) and security jumped 65% (up 60% adjusting for currency).
However, the company’s adjusted gross profit margin fell to 43.7% from 44.5% a year earlier. Wedbush Securities analyst Moshe Katri noted that the company’s “legacy hardware business is continuing to weigh on margins.”
Downbeat Outlook
IBM reiterated its guidance for adjusted earnings per share at a minimum of $13.80 for 2018. Analysts were expecting $13.83 in earnings per share, excluding certain items, for the full year, according to Thomson Reuters. The Zacks Consensus Estimate for 2018 was also $13.83, with 10 analysts providing estimates — the highest being $14.00 and the lowest being $13.75.
Such downbeat guidance punished the stock, which lost about 6% after hours on Apr 17, 2018, despite reporting revenue growth.
Should You buy the Dip?
The company’s progress on emerging technologies and high margin businesses like cloud computing and artificial intelligence positions it better for the long term. But it seems these initiatives are yet to bear fruit.
Decent Zacks Rank
The stock has a Zacks Rank #3 (Hold) and a VGM (Value, Growth, Momentum) Score of A. Its Zacks Industry Rank is in the top 11%.
ETFs to Watch
If you have patience and can wait till IBM’s digitalization and a host of joint ventures pay off significantly, you can look at ETFs with the highest allocation to this tech giant. This is especially true given that the basket approach minimizes stock-specific risks (see: all the Technology ETFs here):
ETFs in Focus
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)
This fund provides exposure to dividend payers within the technology sector. The product has amassed about $877.5 million in its asset base. It charges 50 bps in annual fees and holds about 95 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.21% of the assets. In terms of industrial exposure, the fund allocates about 29.1% of the portfolio in semiconductor and semiconductor equipment, followed by software (14.4%), technology hardware, storage & peripherals (13.9%), and diversified telecom services (12.0%) (read: IBM ETFs to Watch Ahead Of Q1 Earnings).
PowerShares Dow Jones Industrial Average Dividend Portfolio (DJD - Free Report)
This product provides exposure to high-yielding equity securities in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 30 stocks in it basket, with IBM occupying the fourth position holding 5.2%. Information technology, healthcare, industrials and consumer staples are the top four sectors. DJD has been able to manage assets worth $16.8 million. It charges 30 bps in annual fees.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This fund follows the Dow Jones Industrial Average, providing exposure to the 30 blue-chip U.S. stocks. IBM occupies the eighth position in the basket with 4.4% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots, with a double-digit exposure each. DIA is one of the largest and most-popular ETF in the space with AUM of $21.4 billion. It charges 17 bps in annual fees from investors.
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Should You Buy the Dip in IBM With ETFs?
International Business Machines Corporation (IBM - Free Report) returned to revenue growth for the first time in 23 quarters in the fourth quarter of 2017 and maintained that momentum in the first quarter of this year. The company’s adjusted earnings per share came in at $2.45 (up 4% year over year), beating the Zacks Consensus Estimate of $2.40.
The company saw revenue figures of $19.1 billion, surpassing our consensus estimate of $18.72 billion. Revenues grew 5% in Q1 and 0% adjusted for currency (read: Play IBM's Turnaround Story With These ETFs).
First-quarter revenues for strategic imperatives grew 12% (up 10% adjusting for currency). Cloud computing revenues were up 22% (up 20% adjusting for currency). In the first quarter of 2018, revenues from analytics grew 9% (up 4% adjusting for currency), mobile increased 19% (up 14% adjusting for currency) and security jumped 65% (up 60% adjusting for currency).
However, the company’s adjusted gross profit margin fell to 43.7% from 44.5% a year earlier. Wedbush Securities analyst Moshe Katri noted that the company’s “legacy hardware business is continuing to weigh on margins.”
Downbeat Outlook
IBM reiterated its guidance for adjusted earnings per share at a minimum of $13.80 for 2018. Analysts were expecting $13.83 in earnings per share, excluding certain items, for the full year, according to Thomson Reuters. The Zacks Consensus Estimate for 2018 was also $13.83, with 10 analysts providing estimates — the highest being $14.00 and the lowest being $13.75.
Such downbeat guidance punished the stock, which lost about 6% after hours on Apr 17, 2018, despite reporting revenue growth.
Should You buy the Dip?
The company’s progress on emerging technologies and high margin businesses like cloud computing and artificial intelligence positions it better for the long term. But it seems these initiatives are yet to bear fruit.
Decent Zacks Rank
The stock has a Zacks Rank #3 (Hold) and a VGM (Value, Growth, Momentum) Score of A. Its Zacks Industry Rank is in the top 11%.
ETFs to Watch
If you have patience and can wait till IBM’s digitalization and a host of joint ventures pay off significantly, you can look at ETFs with the highest allocation to this tech giant. This is especially true given that the basket approach minimizes stock-specific risks (see: all the Technology ETFs here):
ETFs in Focus
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)
This fund provides exposure to dividend payers within the technology sector. The product has amassed about $877.5 million in its asset base. It charges 50 bps in annual fees and holds about 95 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.21% of the assets. In terms of industrial exposure, the fund allocates about 29.1% of the portfolio in semiconductor and semiconductor equipment, followed by software (14.4%), technology hardware, storage & peripherals (13.9%), and diversified telecom services (12.0%) (read: IBM ETFs to Watch Ahead Of Q1 Earnings).
PowerShares Dow Jones Industrial Average Dividend Portfolio (DJD - Free Report)
This product provides exposure to high-yielding equity securities in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 30 stocks in it basket, with IBM occupying the fourth position holding 5.2%. Information technology, healthcare, industrials and consumer staples are the top four sectors. DJD has been able to manage assets worth $16.8 million. It charges 30 bps in annual fees.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This fund follows the Dow Jones Industrial Average, providing exposure to the 30 blue-chip U.S. stocks. IBM occupies the eighth position in the basket with 4.4% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots, with a double-digit exposure each. DIA is one of the largest and most-popular ETF in the space with AUM of $21.4 billion. It charges 17 bps in annual fees from investors.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>