International Business Machines Corp. (NYSE: IBM) investors were once again disappointed with the company’s lackluster growth numbers in the first quarter of 2018.
On Tuesday afternoon, IBM reported its second consecutive quarter of revenue growth, suggesting years of heavy investing in initiatives targeting cloud computing and artificial intelligence may finally be starting to pay off, but the stock initially dropped by more than 5 percent.
Excluding certain items, IBM reported earnings per share of $2.45, topping consensus analyst expectations of $2.42. IBM’s first-quarter revenue of $19.1 billion also beat Wall Street’s $18.84 billion estimate.
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Revenue was up 5 percent in the first quarter compared to a year ago. IBM reported revenue growth of 3.6 percent in the fourth quarter of 2017, its first quarterly revenue growth since the first quarter of 2012.
CEO Ginni Rometty is focusing on the company’s 14 percent currency-adjusted growth in cloud revenue.
“These results reinforce that our clients value our innovative technologies, our industry expertise and our commitment and actions for the responsible stewardship of their privacy and data,” Rometty says in a statement. “This is also reflected in our leadership positions in enterprise cloud, AI and security.”
GBH Insights head of technology research Daniel Ives says IBM is slowly moving in the right direction with its business, but investor patience is wearing thin.
“The Street wanted to see a strong strategic imperatives number as this remains the key fuel in the IBM growth engine going forward,” he says. “Overall, the bulls were hoping for more on this quarter and it continues to be an uphill battle for IBM given the mature traditional mainframe business is an anchor on the ship.”
Looking ahead, IBM reaffirmed its previous full-year 2018 EPS guidance of $13.80. Analysts had been expecting EPS guidance of $13.83.
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Bank of America analyst Wamsi Mohan says IBM is one of the more defensive plays among large-cap stocks.
“We view IBM as a defensive investment given its high exposure to recurring sales, cost cutting levers, solid balance sheet, potential share gains, and relatively stable margins,” Mohan said on Monday. Mohan says IBM investors can expect more cost-cutting and acquisitions in coming years.
IBM stock hasn’t made new all-time highs since early 2013 and is now down 28.2 percent in the past five years.
Bank of America has a “buy” rating and $200 price target for IBM. GBH Insights has an “attractive” rating and $180 target for IBM stock.
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IBM Earnings Disappoint Despite Cloud Growth originally appeared on usnews.com
