IBM Stock Still a Sturdy Winner Despite Its Fall

On Tuesday, International Business Machines (IBM) reported Q4 earnings of $6.13 per share. That was 14 cents more than Wall Street’s consensus. That’s the good news.

IBMThe bad news is that much of that earnings beat was driven by cost-cutting. IBM’s top line numbers were pretty weak. Quarterly revenues fell 5.5% to $27.7 billion. That was $600 million below forecast, and it was the seventh-straight quarter of falling sales.

We know that much of the tech world is shifting to cloud-based networks, but Big Blue isn’t exactly sitting still. The company is aggressively moving toward cloud services, and they’re ditching their lower-margin businesses.

They just sold their server business to Lenovo for $2.3 billion. The company also realizes the situation it’s in; the entire senior team has foregone bonuses. On the positive end, I was impressed to hear IBM say that it sees earnings for 2014 of at least $18 per share. They also reiterated their earnings target of $20 per share for 2015.

Simply put, IBM stock isn’t popular on Wall Street at the moment. The stock got clipped by more than 3% on Wednesday, the day after the earnings report came out. I’m not saying that IBM doesn’t face a difficult environment. It does. Its systems and tech revenue fell 26% last quarter. But IBM has transformed itself many times in its history. Remember that their cloud revenue rose by 69% in Q4 to $4.4 billion.

I think IBM stock is in a position similar to where Microsoft (MSFT) was one year ago. Bears have been having a field day beating them up, but the stock is cheap now. It’s going for about 10 times earnings, which is far less than the rest of the market.

My take: IBM will require some patience, but it’s a solid stock.

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