Earnings season is in full swing, providing new data points for investors to reassess positions. After a careful review of IBM‘s latest report Tuesday afternoon, I see no reason to buy the stock at current prices. The risk-reward trade off is simply not favorable.
Of special note is that revenue fell 5%, year over year to $27.7 billion. Analysts were looking on average for $28.25 billion. More important is that for the first quarter of 2014, IBM sees EPS of $2.50 compared to consensus of $3.27.
IBM did not do well in high-growth BRIC countries. Revenue declined 8% in Brazil, Russia, India and China.
Take a look at revenue declines in some segments of IBM business: System z mainframe revenues fell 37% compared to the year ago period, revenues for System x declined 16%, System Storage dropped 13%, Micro Electronics OEM was down 33%, and Global Technologies Services sales declined 4%.
IBM expects to generate $18 in EPS in 2014 and $20 in 2015, giving it a forward P/E of less than 10 times earnings, but top-line growth is the problem. IBM is managing its earnings primarily through share buybacks. The company has been shrinking its float by roughly 1% every quarter. Today, IBM has about half the number of shares outstanding compared to 20 years ago. In Q4, IBM purchased $5.8 billion of its stock compared to $3 billion in the prior year period…Read more at Forbes
