IBM Share Price Down Nearly 20% Over Trailing 12 Months – Buying Opportunity or Sell Signal? (IBM)

While the International Business Machines Corporation’s (NYSE:IBM) stock price did exhibit a steady decline over the past 12 months, IBM has been investing heavily in potentially profitable business segments, which could offer a strong spring board for the share price to bounce back into its long-term rising trend.

The current share-price drop of nearly 20% over the past 12 months is hopefully just a temporary asset loss for existing long-term shareholders. Therefore, if IBM’s current initiatives bear fruit, the recent price drop might be an opportunity for new investors to take a position in the IBM stock at discounted rates. In the meantime, investors can collect a steady dividend income of 4.7% on their shares in the company.

With a streak of 20 consecutive annual dividend hikes and a steady share price growth, “Big Blue” has been the epitome of Blue Chip stocks for decades. However, after failing to fend off some of its new competitors, IBM’s share price plateaued in mid-1999 and traded sideways with increased volatility for nearly a decade.

During this period, the company decided to divest its personal computer business and focus its resources towards cloud storage, Artificial Intelligence (AI) and data analytics. Lenovo Group Limited (0992.HK) acquired IBM’s line of personal and laptop computers and developed those products to become the world’s largest personal computer vendor by unit sales from 2013.

However, IBM’s focus and investment into the promising AI segment could start paying off as the company is well-positioned with its current product offerings. According to a report released in mid-2018 by Gartner, the total business value derived from AI globally in 2018 was expected to increase 70% over the previous year and more-than triple to nearly $4 trillion in 2022.

Earnings results

The company released its fourth-quarter and full-year 2018 earnings results on January 22, 2019 and revealed that it outperformed both top- and bottom-line Wall Street estimates. The $21.76 revenues for the quarter were just 0.05% above the $21.75 billion forecast. However, the adjusted earnings per share (EPS) of $4.87 were a full 1% higher than the $4.82 estimate. With the fourth-quarter EPS beating analysts’ estimates, IBM has beaten consensus estimates every quarter in 2018.

For the full year, the total revenue grew at a slightly lower rate of 0.63% than the 1% rate in the fourth quarter to $79.6 billion for full-year 2018. This increase is the company’s first year-over-year annual revenue growth in seven years. While the total revenue for the year grew at a similar rate as the fourth quarter figure, the $13.90 full-year EPS advanced significantly higher than the fourth quarter number – 0.43% for the year versus the fourth-quarter 0.05% figure.

Cash Flow

IBM generated $4.1 billion net cash from operating activities in the quarter. From the quarter’s free cash flow of $6.5 billion, the company returned more than half to its shareholders – $1.4 billion through dividend distributions and $2 billion through gross-share repurchases. The company’s current share repurchase authorization still had $3.3 billion remaining at the end of December 2018.

IBM’s shareholders received an even greater share of the company’s cash for the entire year. The total $10.1 billion returned to shareholders – $5.7 billion in dividends and $4.4 billion in share repurchases – corresponds to nearly 85% of the company’s full-year free cash flow of $11.9 billion.

International Business Machines Corporation (NYSE:IBM)

Headquartered in Armonk, New York, and formed in 1911, the International Business Machines Corporation operates as an integrated technology and services company worldwide. The company’s Cognitive Solutions segment offers the Watson suite of enterprise-ready AI services, as well as data analytics solutions and transaction processing software. The Global Business Services segment offers business consulting, application management and business process outsourcing services. Additionally, the Technology Services & Cloud Platforms segment provides cloud services, technical support and integration software solutions. The company’s Systems segment offers servers and data storage. IBM’s Global Financing segment provides lease, installment payment plans, loan financing services and short-term working capital financing to suppliers, distributors and resellers.

After starting the trailing 12 months from its 52-week high of $163.62 on January 30, 2018, the share price declined nearly 35% before bottoming out at its 52-week low of $107.57 on December 24, 2018. However, while the January 30, 2019 closing price of $134.38 is still nearly 18% lower than it was one year earlier, the share price has advanced 25% above its Christmas Eve low. Investors should monitor whether the uptrend continues and decide whether the recent dip is a buying opportunity or whether to seek higher returns elsewhere.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.