[ad_1]
Shares of International Business Machines Corp. were on the verge of their worst day in six months on Wednesday as investors seemed eager to see the technology giant grow new business after a brief period of revenue growth.
IBM
IBM, -7.63%
Stocks declined 7.3% to $ 134.57 in recent activity, after reaching a day low of $ 133.43, which allowed the stock to reach its worst performance of a day since mid-April. The finish at current levels would be the lowest closing price for IBM shares since March 2016.
IBM stocks posted the worst performance of the Dow Jones Industrial Average
DJIA, -0.36%
which was down 0.1% on Wednesday. The S & P 500 index
SPX, -0.03%
was up 0.2% and the Nasdaq Composite Index, very technology driven
SPX, -0.03%
was up 0.1%.
Late Wednesday, IBM announced a third-quarter adjusted profit higher than Wall Street estimates, but the missing results are more related to the shortfall in the Big Blue weaning segments of its traditional mainframe business.
Of the 24 analysts who cover IBM, the opinion was divided, but negative: five analysts lowered their price targets and two raised them, which resulted in an average price target of $ 161.66, according to FactSet . With an analyst who has reduced the stock to a holding, nine analysts now have buy or overweight ratings, 12 have holding ratings and three have sell ratings.
The third-quarter sales figure decreased to $ 18.76 billion from $ 19.15 billion for the same period last year, halting a series of two-quarter gains. which ended a series of 23 quarters during which the turnover was down.
Cognitive solutions, including Watson AI, were one of IBM's worst-performing segments for the quarter. The group's turnover decreased by 6% to $ 4.1 billion compared to the same quarter of last year, while analysts expected a 2% drop in sales, at $ 4.31 billion.
Technology services and the cloud platform, which includes the IBM cloud, posted a stable business figure of $ 8.3 billion compared to the previous year, as analysts $ 8.43 billion.
Lisa Ellis, an analyst at Moffett Nathanson, who has a $ 140 selling price and a price target on IBM, said the company was facing an anchor problem with regards to its transformation. Although the cloud and artificial intelligence are the future and the way forward, they are not developing fast enough to fill the void of traditional technologies.
"IBM still has about 40% of revenues in the areas of business computing in long-term structural decline, including on-premise software, data center outsourcing, and hardware support." said Ellis in a note. "Even if IBM is able to slow down these activities, they can not be reversed – these segments of the industry will disappear over time. Worse still, these companies are very profitable and account for about 50% of IBM's profits. "
For IBM, "as long as the" anchor point "is still wide (and currently, it's still far bigger than the growth areas), IBM's turnaround and the company's ability to reach its long-term goal of high single-digit EPS growth – will remain long and uncertain, "said Ellis.
David Grossman, an analyst at Stifel, who obtained a purchase price and a target price of $ 178 on IBM, in a note titled "Some good, some bad, some online; Another typical IBM neighborhood, "said the company's cognitive solutions segment is the most difficult to project.
"There was a surprise during the quarter, that's the gradual deceleration of the cognitive segment," Grossman said. "Cognitive (22% of revenue, down 5% tcc) includes most of IBM's software assets. While management warned of the gradual weakness of the third quarter after falling 1% in the second quarter, the additional erosion was larger than expected. "
Wedbush analyst Moshe Katri, who has a neutral rating on IBM and a price target of $ 185, said the consistency and acceleration of growth was inconsistent with cognitive and cloud technologies and described as "unconvincing" by profitability.
Katri said that he thought IBM would only start generating a meaningful return for shareholders if the company engaged "in the difficult path of terminating / restructuring aggressively underperforming units, thereby sacrificing revenue growth to generate margin / FCF improvements ".
"In the case, IBM's portfolio of traditional products and services" commodities "will continue to limit the performance of the entire operation," Katri said.
John Roy, an analyst at UBS, who has a purchase price and a target price of $ 180, said: "The company is talking about dizziness, but investors wanted growth in their income now."
"Artificial intelligence and analysis have begun to help IBM improve its operations. the next step will be to help sales, "said Roy. "We would be buyers here, because these operational solutions will likely remain in the business units and the earnings from the decline in revenues should begin to work, particularly because of the negative sentiment towards IBM and the US. title. "
Receive the best technical articles of the day in your inbox. Subscribe to MarketWatch's free Tech Daily newsletter. Register here.
Source link
