International Business Machines Corporation

IBM Details

International Business Machines Corporation (NYSE: IBM) is a global technology company. Its operating segments are 1) Cloud & Cognitive Software, which offers integrated and secure cloud, data and artificial intelligence (AI) solutions to its customers, 2) Global Business Services, which provides consulting, business process and application management services, 3) Global Technology Services (GTS), which provides information technology (IT) infrastructure and platform services, 4) Systems segment, offering infrastructure platforms to address the needs of multi-cloud and enterprise AI workloads, and 5) Global Financing segment, which provides lease, installment payment, loan financing, short-term working capital financing services principally through IBM Credit LLC.

Accelerating Efficiencies Through Innovation: On September 15, 2021, IBM launched its first IBM Cloud Multizone Region (MZR) in Spain, designed to assist European businesses in developing intelligent workflows. It also signed an agreement with CaixaBank, a Spanish financial group, to strengthen its digital capabilities by integrating MZR and adopting IBM Cloud for Financial Services.

Digitizing the Financial Industry: On September 14, 2021, IBM announced the expansion of its collaboration with Atos, a cybersecurity, cloud, and high-performance computing company, to assist banks and insurance companies in meeting their increasing security and regulatory compliance obligations when shifting their workloads and applications to the cloud. Atos and IBM plan to develop a new Atos Cloud Center of Excellence to support financial services clients in meeting consumer demand.

Q2FY21 Results: The company reported YoY growth of 3.43% in total revenues to USD 18.75 billion in Q2FY21 (ended June 30, 2021) compared to USD 18.12 billion in Q2FY20. The Services segment, which accounted for 61.27% of the total revenue in Q2FY21, reported YoY growth of 5.01%, whereas the Sales segment improved by 1.45% YoY. Net income for IBM reduced to USD 1.33 billion in Q2FY21 vs. USD 1.36 billion in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 7.95 billion and total debt of USD 55.18 billion.

Key Risks: IBM sources a diverse range of components from a large number of global vendors. However, few of its divisions rely on single or limited suppliers for server processor technology required in certain semiconductors. Hence, any lag in the supply of the requisite quantity and quality or unfavorable pricing could distort its production and, in turn, could adversely affect the company's reputation and its results of operations.

Outlook: In FY21, IBM expects to generate adjusted free cash flow in the range of USD 11 – 12 billion, excluding USD 3 billion cash impacts from its structural actions and transaction cost arising from the separation of its managed infrastructure services unit of the GTS segment (now named Kyndryl).

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

IBM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: IBM's share price fell 5.07% in the past three months and is currently leaning towards the higher-band of its 52-week range of USD 105.92 to USD 152.84. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 37.62. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 151.70. Considering the slight correction in the stock price, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 135.86, down 0.42% as of September 17, 2021, 3:44 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

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