On April 17, IBM announced shrinking margins and flat currency-adjusted revenue—and it failed to boost its forecast for the year. The stock had lost 7.6% before the close on April 18.
Is this a great buying opportunity? No, and that’s because IBM lacks a sustainable competitive advantage. (I have no financial interest in IBM securities).
Before getting into that, let’s take a look at its weak first quarter report. As Bloomberg reported, its revenue of $19.1 billion was $300 million above analyst estimates but flat compared to the year before without currency fluctuations. IBM’s profit margin fell 0.6 percentage points to 43.2%.
IBM disappointed on earnings per share for the quarter and for its 2018 EPS forecast. Its adjusted EPS of $2.45 fell three cents short of analyst expectations. What’s more, Wall Street expected IBM to boost its 2018 EPS forecast but the company kept it at $13.80 a share, according to Bloomberg.
For five years, IBM suffered quarterly revenue declines—a trend it reversed in the fourth quarter of 2017. Sadly, that reversal appears to have been due mostly to cyclical factors—mainframe customers replacing old machines.
Indeed, the Wall Street Journal reported that IBM is at the end of this cycle, noting:
Several analysts expect the mainframe cycle to tail off by the end of the year, creating a challenge for IBM to maintain its momentum, especially since hardware sales tend to also have a beneficial effect on revenue in other divisions. Toni Sacconaghi, an analyst at Bernstein Research, estimates that hardware drives sales of related support services, software, storage and financing that historically have made up roughly 40% of IBM’s operating profit.
IBM CEO Ginny Rometty has been touting so-called strategic imperatives—including social, mobile, analytics and cloud—as the key to its future growth. But strategic imperatives accounted for a declining share of revenues in the first quarter, 47%, compared to 49% in the fourth quarter of 2017.
As CNBC reported, that decline was a “disappointment to Cantor Fitzgerald analysts who expected that balance to be unchanged in the first quarter.” What’s more, strategic imperative growth slowed from 17% in the fourth quarter to 15% in the first.
The post Don’t Buy IBM — It Lacks Sustainable Competitive Advantage appeared first on Statii News.
source http://news.statii.co.uk/dont-buy-ibm-it-lacks-sustainable-competitive-advantage/
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