IBM Stock Falls 6% Despite Beating Estimates

  • Shares of IBM (IBM) are down today after the company lowered its cash flow forecast.
  • The lowered guidance obscured what was otherwise a strong second quarter print from IBM.
  • Before today, IBM stock had been up 2% year-to-date, beating the broader market.
IBM stock - IBM Stock Falls 6% Despite Beating Estimates

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IBM (NYSE:IBM) stock is down 6% today even though the technology giant delivered second quarter earnings that beat on both the top and bottom lines.

The decline in IBM stock seems to be due to the Armonk New York-based company lowering its cash forecast for the remainder of this year, news that disappointed analysts and investors.

However, despite today’s decline, IBM is one of the few U.S. technology companies whose stock has risen this year. Prior to today’s pullback, IBM stock had gained 2% year-to-date to trade at $138.13 per share.

What Happened

IBM’s Q2 results handily beat Wall Street forecasts. The technology company, which has been a going concern since 1911, reported earnings per share (EPS) of $2.31 compared to $2.27 that analysts had expected, according to Refinitiv data. Revenue in the April through June period totaled $15.54 billion versus $15.18 billion that was anticipated.

The strong results come after IBM spun off its managed infrastructure services business Kyndryl (NYSE:KD) last year. Sales from Kyndryl helped to boost IBM’s Q2 revenue, said the company.

However, IBM forecast $10 billion in free cash flow for the remainder of this year, down from a range of $10 billion to $10.5 billion previously. The company blamed the lowered guidance on a strong U.S. dollar and suspension of its business in Russia following that country’s invasion of Ukraine.

Why It Matters

The lowered outlook for its cash position and subsequent stock decline shows that investors are in no mood for any disappointment when it comes to corporate earnings. Indeed, a just released survey from Bank of America (NYSE:BAC) has found that a growing number of investors are capitulating and selling stocks, lifting cash holdings to their highest level since the dotcom crash in 2001.

Still, IBM’s Q2 results were generally positive, with the company reporting $6.17 billion in software revenue, up 6% from a year earlier. The company’s consulting division generated $4.81 billion in revenue during Q2, up nearly 10% from a year ago. While IBM stock has gained since the company spun off Kyndryl last fall, the share price has lagged the market for a long time, down 2% over the past five years.

What’s Next for IBM Stock

IBM stock looks likely to turn negative on the year after outperforming the broader market during the past seven months. The company’s lowered forecast for its cash flow seems to have overshadowed what was otherwise a strong quarter.

On the date of publication, Joel Baglole held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


Article printed from InvestorPlace Media, https://investorplace.com/2022/07/ibm-stock-falls-6-despite-beating-estimates/.

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