International Business Machines (NYSE: IBM) recently sold, putting the stock on investors’ radar. Adding to the bearish sentiment for the stock is the fact that insiders at the company are selling stock. Last quarter, $311.11 million shares were sold. Despite this, the company maintains a 12.9% gain from its consensus price target of $146.10. In this article, we’ll examine the forces working for and against the company to drive this consensus from Wall St.
The advantages of IBM
No IBM analysis would be complete without a look at its profitability above the board compared to the industry sector. IBM’s cash from operations stands at 9.83 billion, compared to the industry median of 67.96 million. This cash inflow to the company is aided by its EBITDA margin of 20.37%, while the industry lags behind at 12.95%.
Due to the stock sell-off for the IBM, it is also trading at a steep discount, which positively changes the valuation. The company’s FWD P/E ratio is 19.96 compared to the industrial sector’s 21.62. Due to the strength of the company’s cash-generating business, the FWD price/cash flow is also exceptional at 10.32 compared to 17.46 for the industry. All this money also means it is able to pay a high dividend to investors. The company’s FWD dividend yield is 5.11%, compared to the industry median 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 profitability, dividends and cash flow, there are some weaknesses of this stock that need to be addressed. The company’s FWD revenue growth is negative at -5.48%, compared to the industry median of 14.67%. This factor also impacts 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 are 14 downward EPS revisions and 12 downward revenue revisions. 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 also received a sell recommendation and a strong sell recommendation.
IBM vs Infosys
Infosys (NYSE: INFY) is a competitor of IBM in the IT sector. INFY is significantly smaller than IBM with a market cap of 77.31B compared to 116.62B. The YTD returns for both stocks are currently negative, with a bigger sell-off for INFY than for IBM. INFY is currently down -25.25% while IBM is down -1.05%. Over a longer period of time, INFY has delivered investors significantly more returns than IBM. In the past three years, IBM achieved 72.33% and IBM 3.53%.
One area where IBM INFY shines is the dividend. IBM’s dividend rate is $6.50 compared to INFY’s $0.40 dividend. These differences are also passed on to the dividend yields of the companies. IBM’s dividend yield is 5.03% and INFY’s yield is 2.16%.
IBM also beats INFY on valuation. IBM’s FWD P/E ratio is 19.96, while INFY has a revenue of only 25.34.