After years of disappointing numbers, IBM (NYSE: IBM) may finally be on the right long-term trajectory after reporting a third consecutive quarter of revenue growth on Wednesday afternoon. IBM stock added roughly 3 percent Thursday morning, and analysts say the second quarter was IBM’s best showing in a long time.
IBM reported second-quarter adjusted earnings per share of $3.08 on revenue of $20 billion. Both numbers topped consensus analyst estimates of $3.04 and $19.85 billion, respectively. Revenue was up 4 percent from a year ago or 2 percent after adjusting for currency fluctuations.
For the first time in IBM’s history, the company generated more than half ($10.1 billion) of its revenue from its high-growth strategic imperatives segment. SI includes social, mobile, analytics and cloud computing revenue. SI revenue was up 26 percent year-over-year, a major improvement from its 15 percent growth in the first quarter, and a big reason IBM stock is responding so positively to Big Blue’s earnings report.
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Cloud revenue was up 20 percent to $4.7 billion. Technology services and cloud platforms revenue was $8.62 billion in the second quarter, in-line with analyst estimates. Global business services revenue of $4.19 billion beat consensus forecasts of $4.16 billion.
IBM’s systems segment also outperformed expectations, generating $2.18 billion in revenue compared to consensus estimates of $1.85 billion.
“We delivered strong revenue and profit growth in the quarter, underscoring IBM’s progress and momentum in the emerging, high-value segments of the IT industry,” CEO Ginni Rometty says in a statement.
Despite the many positives, there were a handful of shortcomings in the quarter as well. Cognitive solutions revenue of $4.58 billion was short of analyst estimates of $4.76 billion. In addition, gross margin contracted by 60 basis points to 46.5 percent, missing Wall Street expectations of 47 percent.
Still, the big picture is encouraging for investors. IBM guided for full-year 2018 EPS of at least $13.80, slightly above analyst estimates of $13.78.
Bank of America analyst Wamsi Mohan says IBM’s second quarter was the company’s best quarter in quite some time.
“The quarter had a lot of positives,” Mohan says. “We view the optionality of growth as too attractive to ignore at these levels, especially with a 4.3 percent dividend yield.”
[See: These 52 ‘Dividend Aristocrats’ Have Each Raised Dividends 25 Years Straight.]
Bank of America has a “buy” rating and $200 price target for IBM stock.
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IBM Stock Rises on Best Quarter in Recent Memory originally appeared on usnews.com
