International Business Machines (NYSE: IBM) has been selling off recently, which has put the stock on investors’ radars. Adding to the bearish sentiment in the stock is the fact that company insiders are selling shares. Shares worth $311.11 million were sold last quarter. Despite this, the company remains 12.9% above the consensus price target of $146.10. In this article we will explore the forces working for and against the company to overcome this consensus established by Wall St.
The positive aspects of IBM
No analysis of IBM would be complete without looking at its superior profitability compared to the industry sector. IBM’s cash from operations stands at 9.83 million, compared to the industry average of 67.96 million. This influx of cash into the company is helped by its EBITDA margin of 20.37%, while the sector lags behind at 12.95%.
Due to the sale of IBM shares, it is also trading at a steep discount, which positively changes its valuation. The company’s FWD P/E ratio is 19.96 compared to the industry sector of 21.62. Due to the strength of the company’s cash-generating activities, its price/cashflow FWD is also exceptional at 10.32 compared to the industry’s 17.46. All that cash also means it’s able to return a hefty dividend to investors. The company’s FWD dividend yield is 5.11% compared to the industry average of just 1.44%. It also has 23 consecutive years of dividend growth and a healthy payout ratio of 68.68%.
The disadvantages of investing in IBM
Despite the company’s obvious strengths in terms of profitability, dividends and cash flow, there are some weaknesses in this stock that should be addressed. The company’s FWD revenue growth is negative at -5.48% compared to the industry average of 14.67%. This factor also affects IBM’s operating cash flow growth of -9.18% while the industry median is 14.12%.
Analysts have also made a number of negative revisions to this stock. There were 14 EPS downgrades and 12 revenue downgrades. Over the past 90 days, analysts have given the stock a consensus hold rating with 11 hold ratings, 4 strong buy ratings and 2 buy ratings. The stock was also given a sell rating and a strong sell rating.
IBM vs. Infosys
Infosys (NYSE: INFY ) is a competitor of IBM in the IT sector. INFY is considerably smaller than IBM with a market cap of 77.31B compared to 116.62B. YTD performance for both stocks is currently negative, with INFY selling deeper than IBM. Currently, INFY is down -25.25% while IBM is down -1.05%. Over a longer period of time, INFY has provided considerably greater returns to investors than IBM. Over the past three years, IBM returned 72.33% while IBM returned 3.53%.
One area that IBM stands out over INFY is its dividend. IBM’s dividend rate is $6.50 compared to INFY’s dividend of $0.40. These differences are also transferred to companies’ dividend yields. IBM’s dividend yield is 5.03% and INFY’s dividend yield is 2.16%.
IBM also outperforms INFY in terms of valuation. IBM’s FWD P/E ratio is 19.96 while INFY is yielding only 25.34.