Business

IBM’s ‘significant’ dividend, debt swept in Big Blue’s sails as analyst downgrades stock


Shares of International Business Machines Corp. was downgraded Monday after an analyst said that with Big Blue’s transformation efforts and share prices somewhat flat for the year, there won’t be much wind to push prices higher.

IBM
IBM,
-0.53%

shares fell as much as 1.5% to an intraday low of $134.95, as the Dow Jones Industrial Average
DIA,
-0.10%

– counting IBM as a component – down 0.1%, S&P 500
SPX,
-0.61%

slip 0.6% and Nasdaq is tech-heavy
COMPUTER,
-0.56%

decreased by about 1%.

In a note Monday, Edward Jones analyst Logan Purk downgraded IBM stock to hold from buy rating on the belief that the transition to a software and consulting-focused company more are included in the share price.

IBM stock is up about 1% over the past 12 months, while the average Dow is down 3.5%, the S&P 500 is down 8.6% and the Nasdaq is down 15.6%. Given that time, year-to-year comparisons will be difficult, and Purk says that right now, the stock is priced fairly well in the $135 region.

Read: IBM posts biggest annual revenue increase in over a decade, announces 3,900 layoffs

Purk said that IBM “has largely been successful in reorganizing its business to focus on the faster-growing final consulting and software markets following the decoupling of its management business.” infrastructure management”, now known as Kyndryl Holdings Inc.
KD,
-2.87%
.
Investors have rewarded IBM’s efforts with a share price that goes against the trend in 2022.

Read: IBM layoffs don’t help stock, as analysts still fret over cash flow

While Purk says management has done an “admirable job of transforming the company.” [by] weeding out the low-growth businesses and focusing on the more attractive end-markets of software and consulting,” doesn’t seem to have any wind in the sails anymore.

“Given the success of these moves, we don’t see any meaningful catalysts that will push the stock higher,” Purk said. “The company also holds an inflated amount of debt,” which, combined with a “significant” dividend, “limits the company’s financial flexibility.”

IBM claims a 4.9% dividend yield, the fifth-highest above the Dow average, while Dow’s other technology component Intel Corp.
INTC,
-4.21%

interest rate of 5%. The higher yielding Dow components are Verizon Communications Inc.
VZ,
-0.67%

At 6.3%, Walgreens Boots Alliance Inc.
WBA,
-2.17%

at 5.3% and 3M Co.
MMM,
-0.78%

at 5.1%, according to FactSet data.

Read: Morgan Stanley reverses IBM upgrade in 9 months as shares outperform broader market

IBM reported the biggest revenue increase in a decade at the end of Januaryrose 5.5% to $60.53 billion, but Wall Street was more concerned with free cash flow, far below expectations at $9.3 billion, with a forecast of $10.5 billion dollars for 2023.

Read: IBM just broke a nearly three-decade winning streak

Of the 30 analysts tracking IBM, 20 have buy ratings, 9 hold ratings and one sell rating with an average price target of $150.49, according to FactSet data.

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