Back to top

Image: Bigstock

Here's What You Missed Out by Overlooking IBM's Stock

Read MoreHide Full Article

Of late International Business Machines Corporation (IBM - Free Report) has been on healthy growth trajectory. This is quite evident from the company’s strong fundamentals and rising share price.

Notably, the company’s shares have gained 5.3%, outperforming the S&P 500’s rally of 4.5%.

IBM’s advanced blockchain, cloud, machine learning ("ML") capabilities, among others poises its offerings well to gain robust adoption. The company also benefits from strong demand for z14 Mainframe and Power products. Moreover, IBM’s improving position in the cloud, security and analytics bodes well. Further, accretive acquisitions have expanded IBM’s product portfolio into higher-growth segments, such as cloud computing, artificial intelligence (AI) and Big Data.

Growth Prospects

Red Hat recently collaborated with Hortonworks and IBM for Open Hybrid Architecture Initiative, which is aimed at bringing big data to hybrid cloud environments. Moreover, IBM is also working toward Red Hat OpenShift certification process for its private cloud platform.

IBM also strengthened its partnership with United States Tennis Association (“USTA”). Robust AI capabilities of IBM’s Watson will aid US Open Tennis players to enhance their game strategy and preparation.

The company’s bid to go integrate AI into sports systems’ is in sync with its strategy to go beyond fan engagement to influencing players with robust strategies. It is a win-win for both the parties involved. These innovative solutions position IBM well to gain momentum with Watson.

This is acting as a tailwind for IBM’s Watson which is witnessing increasing adoption across many industries.

In fact, per an IDC report, worldwide spending on cognitive and AI systems is estimated to be over $52.2 billion by 2021 at a CAGR of 46.2% from 2016 to 2021.

Notably, IBM Watson AI capabilities have also been leveraged by The All England Lawn Tennis Club (“AELTC”) to boost engagement for Wimbledon fans in the recent past.

IBM Cloud was also selected by NOVIS, a Bratislava, Slovakia-based insurance company. IBM Cloud capabilities will aid the company to upscale its business operations beyond Europe.

We believe increasing adoption of IBM cloud by innovative companies like NOVIS, is expected to bolster the company’s cloud revenues, consequently driving top-line growth.

IBM Cloud Gaining Traction

IBM’s sincere efforts seem to be materializing. Geographically, top-line growth was strongest in Europe, Middle East and Africa in the second quarter of fiscal 2018. The figure increased 4% from the year-ago quarter, driven by growth in Germany, the U.K., France and Spain.

The continued robust adoption of IBM Cloud is anticipated to benefit IBM, going forward. According to latest second-quarter data from Synergy Research, IBM Cloud market share remained comparatively stable at approximately 8%, on the back of strength in company’s hosted private cloud offerings.

In the second quarter of fiscal 2018, IBM’s cloud revenues surged 18% from the year-ago quarter to $4.7 billion. The annual run rate for cloud as-a-service revenue increased 24% at cc on a year-over-year basis to $11.1 billion. Cloud revenues of $18.5 billion on a trailing 12-month basis now comprise more than 23% of IBM’s total revenues.

To Conclude

IBM outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 1.13%.

Further, it has a long-term expected EPS growth rate of 4.97%.

We expect the trend to continue and drive the overall financial performance of this Zacks Rank #3 (Hold) stock.

Keys Picks

Few better-ranked stocks in the broader technology sector are Cypress Semiconductor Corporation , Salesforce.com Inc (CRM - Free Report) and Aspen Technology, Inc. (AZPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected earnings growth rate (3-5 years) for Cypress, Salesforce and Aspen are 16.1%, 25% and 16.5%, respectively.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in