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Bear of the Day: International Business Machines (IBM)

Big Blue disappoints again.

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This story originally appeared on Zacks

International Business Machines (IBM) is a Zacks Rank #5 (Strong Sell) that provides integrated solutions and services worldwide. The company has transformed its focus into data and cloud, but still provides advanced information technology solutions, computer systems, quantum computing and super computing solutions, enterprise software, storage systems and microelectronics.

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The stock has been hot since the beginning of the year, at one point up over 20%. However, after making a move over $150, the stock traded sideways until it fell off a cliff last week.

The reason was a big miss on earnings. Now investors are worried that it might be another lost year for IBM.

About the Company

IBM is headquartered in Armonk, NY and employs over 345,000 people. The company was founded in 1911 and is a leader in patent wins. In fact, 2020 they maintained the lead spot for the 28th year, with 9,130 patents.

IBM is valued at $115 billion and has a Forward PE of 12. The company holds a Zacks Style Score of “D” in Growth, but “B” in both Value and Momentum. The company also pays a 5% dividend.

Q3 Earnings

The company reported earnings last week, seeing EPS at $2.52 v the $2.49 expected. Revenues came in below expectations after legacy computer services disappointed. Guidance also was a drag, with the company expectation mid-single-digit growth and lower margins.

The stock had a severe sell off, gapping lower and closing lower by almost 10%. Investors might be in store for more pain, as analysts are dropping estimates.

Estimates

The recent quarter was followed a drop in estimates across all time frames. Over the last 7 days, the current quarters numbers have fallen from $4.22 to $3.80, or 10%. For the current year, estimates have fallen about 9% over that same time frame.

The momentum the company saw earlier this year is now gone, so investors should be cautious with the stock into next year.

Technical Take

IBM is trading well below its 200-day moving average after the earnings move lower. Now over 15% off its 2021 highs, the stock is threatening to go red on the year.

Considering the S&P is up over 20% this year, investors might start to give up on IBM if the stock falls below $125.

The dividend will offer support and the $120 level is a long-term support area. However, if this spot fails, look for a move to the $100 level.

In Summary

Expect IBM to struggle after this recent earnings report. After losing its 2021 gains, investors now look at another lost year and negative returns.The 5% plus dividend will bring in buyers as the stock goes lower, but there are plenty of places to put money that offer more opportunity.

For those looking for a company in this sector, Agilysys (AGYS) might be a better bet. Last quarter the company saw a 40% EPS beat and the bulls are hanging onto the 200-day moving average.



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