IBM - International Business Machines Corp

IBM Can't Shake the Q1 Blues
Heading into last night's Q1 2019 earnings report, IBM was the 2nd best performing stock in the Dow Jones Industrial Average on the year. That looks to change this morning with the stock trading down 3.5% ahead of the open on a Q1 revenue miss. The first quarter has been a challenging one for IBM's stock for a decade now!

Using our Earnings Explorer, below is a snapshot of IBM's prior 9 first quarter earnings reports dating back to 2010. In our earnings database, we include how the stock price reacted to the report because that essentially tells investors how good or bad an earnings report really was. As shown in the far right column of the table, IBM has traded lower on its last nine Q1 earnings reaction days (the first trading day following its report). With the stock set to open down 3.5% this morning, there's a strong possibility this Q1 losing streak for IBM will extend to ten years in a row!

 

Dividend Stock Spotlight: International Business Machines (IBM)
Fri, Oct 18, 2019

After Wednesday's close, investors got third-quarter results from blue-chip technology giant International Business Machines (IBM). Consensus analyst forecasts were calling for EPS of $2.66 and revenues of $18.285 billion. While IBM beat EPS by two cents, revenues were more than $250 million below forecasts and down 3.9% year-over-year (the fifth straight quarter with revenues lower than the previous year) even with the boost from newly acquired cloud computing company Red Hat which had stronger revenues In reaction to this miss at the top line, IBM's stock declined 5.52% in trading on Thursday on elevated volumes.

Putting this week's report into historical context, Q3 has been one of the weakest quarters in terms of beat rates as well as stock price reaction for IBM. Since 2000, IBM has only reported better than expected revenues in Q3 38.89% of the time, the lowest of any quarter. The EPS beat rate of 77.78% could also be better but is better than Q1's 61.11%. Given this, Q1 and Q3 stock price reaction to earnings have been less frequently positive with IBM's stock rising only 22% and 33% of the time, respectively. Q1 has actually been the weakest quarter as IBM has averaged a full day decline of 2.37%, most of which comes at the opening gap. Q3 is the next weakest quarter with an average decline of 1.39%. In other words, while yesterday's decline was larger than expected, it is not unusual for the stock to be weak in Q3.



As a result of Thursday's decline, IBM traded down through both its 50 and 200-DMA and now trades at the lower end of the past year's range. The decline also pushed IBM's dividend yield up to 4.83%, which is the highest yield of all S&P 500 technology stocks. It also has the third-highest yield of the 30 Dow stocks behind only Exxon Mobil (XOM) and Dow (DOW). Although the payout ratio is around the highest levels of the past 20 years at 85.8%, meaning further dividend growth given the slowing pace of revenues could come into question, 2019 marked the 24th consecutive year that IBM raised its dividend. Given this, if IBM raises the dividend again in 2020, the stock could potentially join the Dividend Aristocrats—a group of stocks with 25+ straight years of a growing dividend. If this were to happen, IBM would join Automatic Data Processing (ADP) as the only Technology stocks in the group. Additionally, at current yield levels, IBM would also be the fourth-highest yielder of the Dividend Aristocrats, behind AbbVie (ABBV), AT&T (T), and Exxon Mobil (XOM).

 

Big Blue Bounds
Wed, Feb 5, 2020

Of the stocks that have skyrocketed in the last few weeks, there is one that might come as a surprise: International Business Machines (IBM). This left-for-dead technology giant reported earnings on January 21st with strong results. Big blue reported an earnings triple play with EPS 2 cents above estimates, sales $155.1 mm above estimates, and raised guidance. The stock rose 3.39% in response, but in the following days, those gains did not hold. Fortunately for IBM, its recent earnings report is not the only reason it has been in the news lately. Less than a week ago, the company announced that the president and CEO of the past eight years, Ginni Rometty, will be stepping down in April. This resulted in the stock jumping over 5% last Friday with considerable follow-through since then. As of today, IBM has risen 11.75% from the close prior to its earnings report and 13.72% since the CEO announcement, taking out previous highs from the fall.



Not only has this move taken out late September/early October highs, but it has also brought the stock to fresh 52-week highs as shown in the chart below. Today's further gain of another ~5% leaves IBM around 3% above the July high of $151.36.



While IBM has broken out on a shorter-term chart, the technical picture over the long run is at more of a crossroads. For much of the past decade, IBM has been stuck in a prolonged downtrend. The run-up over the past couple of weeks has brought IBM right to the top of resistance at this downtrend line. A breakout above this line would be a promising sign.

At the same time, the fundamental picture still is attractive relative to its peers. IBM currently has one of the lowest valuations and highest yields of the S&P 500's Technology sector stocks. Currently trading at 11.96x earnings, IBM is deeply discounted when compared to the average P/E for the sector of 41.8. Additionally, even with the recent move, IBM yields 4.14%, which is second only to Seagate Technology's (STX) 4.74% yield, which is the highest in the sector.



Again, in spite of its low valuation, IBM is very overbought. Thanks to the over 10% rally in the past five days, IBM has now moved over 4 standard deviations above its 50-DMA, meaning it could be due for some mean reversion. Looking back through the stock's history, there have only been 14 other times that it has risen over 10% in a five-day span without having done so in the prior year. After prior 10%+ rallies in the span of 5 days, the stock has averaged a decline of 0.86% over the next week. Over the next year, however, IBM has averaged a gain of 12.6%.

 

Big Blue Beats
Tue, Jul 21, 2020

Yesterday after the close, IBM reported second-quarter results. Big Blue beat on both the top and bottom line with EPS coming in at $2.18 compared to estimates of $2.09 and revenues were $401.9 million above estimates. Although IBM beat on both the top and bottom line this quarter, EPS and sales have been grinding lower over the past several years as shown in the charts from our Earnings Explorer below. In fact, this quarter still marked EPS down 31% YoY and sales down over 5% YoY.





When it comes to stock price reaction, that beat comes during what has historically been the strongest quarter for IBM. Q2 earnings days have averaged the largest gains of any quarter in terms of the gap up, open to close change, and full-day change. Not only does Q2 experience the largest gains but it is also the quarter that IBM trades higher the most frequently. IBM has traded higher on Q2 earning days 72% of the time. Conversely, IBM has only seen shares trade higher on its Q1 report in April just 21% of the time.



Turning to today, the stock was trading up as much as 6.85% post-market shortly after earnings came out but has reversed some of those gains overnight and is now looking to gap up by 4.75%. That would make for the seventh-largest gap up on earnings for IBM since at least 2001. None of those other largest gaps up happened on a Q2 earnings report.



Looking through the history of IBM in our Earnings Explorer database, IBM has beaten both EPS and revenues 30 times. On average, the stock has gapped up 0.67% to be met with minor selling during the day to finish up 0.65%. Of those 30 times, the 6 occurrences in Q2 have seen even stronger returns which seems to be holding true today.



As for where today's gap up will leave IBM, the stock has been trading in a range for the past few months. In early June, there was a breakout of that range which never held. After returning to the bottom end of said range, IBM has been rallying into earnings closing yesterday at the top of the range and just below its 200-DMA. The gap up on earnings is looking to bring the stock out of that range, above its 200-DMA for the first time since early June, and back up to levels just below its June 8th high.