International Business Machines Corp. (NYSE:IBM) is going through another era in the evolution of its “business machines”. As legacy businesses waxed and waned, so did the fortunes of IBM stock holders. Now, with emerging business lines, both IBM and its shares appear well-positioned to return to growth.
One thing is certain, IBM knows how to adapt over the long-term. Like other long-surviving technology companies — such as Texas Instruments Incorporated (NASDAQ:TXN) or General Electric Company (NYSE:GE), the Armonk, NY company has had to evolve amidst a constantly changing technology landscapes. However, at times IBM stock suffers as a result. The 2010s have been one of those times. Legacy businesses are falling out of favor. These older-line businesses have taken a toll on revenue. As a result, the company reported its 22nd-consecutive quarterly year-over-year revenue decline.
How a company faces a sales drop and evolve with changing technologies often defines it for the long term. Eastman Kodak Company Common New (NYSE:KODK) or Smith Corona Corporation retreat into relative obscurity. Other such as Montgomery Ward fail to adapt with the times and disappear altogether. However, instead of disappearing, a few long-time companies redefine themselves in times of changing technologies and resume their growth.
IBM is one of those companies.
Sales and Earnings Poised to Turn Around
New initiatives such as their cloud computing technologies are attracting customers, enough that analysts predict year-over-year revenue in the upcoming quarter. That 22-quarter streak of revenue declines could soon come to an end.
Like revenue, earnings are also beginning to reflect the long-term value of the IBM stock price. For the third quarter of 2017, earnings came in at $3.30 per share, beating consensus estimates by 2 cents a share. The company also forecast 2017 earnings would exceed meet or exceed $13.80 a share. Consensus was for $13.75 per share before the announcement. Analysts predict earnings of $13.91 per share for fiscal 2018 and $14.14 per share for 2019.
While these figures don’t translate into high growth rates, they are signs that the company has turned a corner. The IBM stock price today stands at around at $154 per share. The stock trades 15% off its intra-day record high of $182.79. What makes IBM stock a buy is that the price-to-earnings (PE) ratio has fallen to under 13. Not even long-time technology firms such as TI, GE, or Intel Corporation (NASDAQ:INTC) trade at such a low multiple. A return to revenue and earnings growth could serve as a catalyst for a higher PE ratio.
Don’t Ignore IBM Stock’s Dividend Growth
Another sign of its continuing long-term strength is its dividend. IBM stock has paid a dividend every year since 1913. It also has increased its dividend in each of the last several years. IBM was one of the few companies to boost its pay-out at the height of the 2007-09 financial crisis.
This long-term trend created a virtuous cycle for the equity. This year’s dividend stands at $6 per share. This amounts to a dividend yield of 3.9%. Interestingly, that $6 dividend is equal to the approximate price of the stock in November 1981 when adjusted for splits and dividend reinvestments.
Bottomline on IBM Stock
After a period of uncertainty, IBM has again adapted with the times and is once again positioned to grow, implying steady IBM stock gains. The company has set its revenue levels set to return to growth. The dividend has also maintained a decades-long record of annual growth.
Stockholders who want growth and have an appetite for risk should look to other investments. However, investors who want to invest in a venerable brand poised for more decades of steady growth and a high dividend yield should look no further than IBM stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
