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Why Investors Should Retain IBM Stock in Their Portfolio

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Shares of IBM Corporation (IBM - Free Report) have been moving north backed by expanding product portfolio, strategic acquisitions, investor-friendly policies and encouraging fourth-quarter 2017 results.

Shares of this Zacks Rank#3 (Hold) company have gained 14% in the past six months, outperforming the industry's rally of 11.8%.

Backed by its global on-demand model, IBM has been experiencing strong top-line growth. This is driven primarily by the company’s progress in business analytics, cloud computing and mobile security business. The company has been engaging in innovations as well as partner programs in the Blockchain market, which will boost revenues.

Impressive Q4 Earnings and Revenues

IBM reported overwhelming fourth-quarter 2017 results wherein its revenues increased yearoveryear for the first time after 22 quarters of consecutive decline.

Revenues of $22.54 billion surpassed the Zacks Consensus Estimate of $21.96 billion and increased 3.5% on a year-over-year basis.

The company reported fourth-quarter non-GAAP earnings of $5.18 per share, which beat the Zacks Consensus Estimate by a penny. Earnings per share (EPS) were better than the year-ago figure by 3.4% and surged 56.9% sequentially.

The top-line performance was better than expected, primarily owing to higher cognitive solutions and systems revenues.

Collaborations, Blockchain Initiatives & Cloud Drive Growth

IBM has been developing a strong portfolio through strategic acquisitions and collaborations. Since 2000, the company has acquired more than 150 companies. These are generating incremental revenues and helping the company achieve a more favorable mix of business.

IBM is involved in a number of blockchain initiatives as the technology gains rapid mainstream adoption. The company has been an early adopter of the blockchain technology and has already worked with more than 400 clients to implement related applications. It has struck bank guarantee deals with ANZ and Westpac as well as a multi-line insurance contract with American International Group and Standard Chartered PLC.

It has also inked a deal with global food suppliers and another one with automobile manufacturer, ZF Friedrichshafen to enhance its Car e-Wallet technology.

Cloud revenues are also a major contributor to growth. Cloud revenues, on a trailing 12-month basis, reached $17 billion, more than 20% of the company’s total revenues. The annual run rate for cloud as-a-service revenues increased 19.8% at constant currency on a year-over-year basis to $10.3 billion.

Positive Earnings Surprise History

IBM has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 2.83%.

Further, it has a long-term expected EPS growth rate of 4.9%.

A Word of Caution

IBM is having a tough time, given the ongoing and heavily time-consuming business model transition to cloud.  Sluggish IT spending, particularly on on-premise and data center hardware, and foreign exchange volatility are concerns.

Moreover, intensifying competition in most of the markets is a major concern.

Stocks to Consider

Some better-ranked stocks in the broader technology sector include IntriCon Corporation (IIN - Free Report) , Micron Technology, Inc. (MU - Free Report) and STMicroelectronics N.V. (STM - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IntriCon, Micron and STMicroelectronics have long-term expected earnings growth rates of 20%, 10% and 5%, respectively.

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