International Business Machines (IBM) stock is notably lower in Thursday's session after the technology giant topped third-quarter profit expectations but came up short of revenue estimates.
In the three months ended September 30, IBM's revenue increased 1.5% year over year to $15 billion, driven by a 9.7% jump in sales in its software segment to $6.5 billion. Its earnings per share (EPS) were up 4.6% from the year-ago period to $2.30.
The results were mixed compared with analysts' expectations. Wall Street was anticipating revenue of $15.1 billion and earnings of $2.23 per share, according to CNBC.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"Our third-quarter performance was led by double-digit growth in Software, including a re-acceleration in Red Hat," said IBM CEO Arvind Krishna in a statement. "We continue to see great momentum in artificial intelligence as our models are trusted, fit-for-purpose, and lower cost, with performance leadership. Our generative AI book of business now stands at more than $3 billion, up more than $1 billion quarter to quarter."
For the fourth quarter, IBM said it expects revenue growth consistent with the third quarter. The company also reiterated its full-year forecast for more than $12 billion in free cash flow.
Free cash flow is important to investors because companies "can do a number of useful things with it, such as pay dividends, buy back its stock, acquire other companies, expand its business and knock out its debts," writes Kiplinger contributor Will Ashworth on the importance of good cash flow.
And for IBM, specifically, some of its free cash flow is used to consistently pay and grow its dividend. Indeed, IBM is one of the best dividend stocks for dividend growth, having increased its payout annually for the past 29 years.
Is IBM stock a buy, sell or hold?
Even with Thursday's post-earnings slump, IBM has been one of the best Dow Jones stocks in 2024, up 46% for the year to date on a total return basis (price change plus dividends). But Wall Street doesn't think there's much more room to run.
According to S&P Global Market Intelligence, the average analyst target price for IBM stock is $214.85, which represents a discount to current levels. Additionally, the consensus recommendation is a Hold.
Not everyone is on the sidelines, though. Financial services firm Stifel is one of the more bullish outfits on the blue chip stock, as evidenced by its Buy rating and $246 price target.
"IBM has re-rated higher relative to S&P 500 reflecting improving execution, free cash flow growth and the company's defensive characteristics," says Stifel analyst David Grossman. “We believe the risk/reward remains attractive as the stock could continue to re-rate further with consistent software revenue growth (Red Hat, ELA cycle, and HashiCorp acquisition), the upcoming mainframe cycle and continued free cash flow growth."
Related Content
-
Is Tesla Stock a Buy After Blowout Earnings?Tesla stock is rallying after the EV maker's Q3 profits topped estimates and CEO Elon Musk gave an upbeat outlook for next year's deliveries. Here's what Wall Street is saying.
-
Callable CDs: Was Your High-Yield CD Called Back Before It Matured?Here's what you need to know about callable CDs, which let banks redeem your CD before its official maturity date.
-
Is Tesla Stock a Buy After Blowout Earnings?
Tesla stock is rallying after the EV maker's Q3 profits topped estimates and CEO Elon Musk gave an upbeat outlook for next year's deliveries. Here's what Wall Street is saying.
-
Is a Roth Conversion Right for You Before the Election?If you’re concerned about possible tax policy changes after the next president takes office, you might want to consider a Roth conversion now.
-
How Can Your Investments Act as Your Financial Safety Net?A securities-backed line of credit (SBLOC) lets you borrow against your investments without forfeiting their growth potential.
-
Seven Financial Mistakes to Avoid in DivorceFrom overlooking hidden assets to scary tax surprises, help protect your financial future by steering clear of these common pitfalls during the divorce process.
-
How an Irrevocable Trust Could Pay for EducationAn education trust can be set up for one person or multiple people, and the trust maker decides how the money should be used and at what age.
-
Stock Market Today: Mixed Earnings, Election Worries Weigh on EquitiesA mixed batch of corporate reports and rising election anxiety led to another down day for stocks.
-
Coca-Cola Stock Is Lower Despite Its Earnings Beat. Here's WhyCoca-Cola stock is lower Wednesday even after the soft drink maker reported better-than-expected Q3 earnings and revenue. Here's what Wall Street has to say.
-
What Starbucks' Latest Dividend Hike Means for InvestorsStarbucks disclosed preliminary Q4 results and suspended its full-year guidance, but also extended its long history of dividend hikes. Here's what you need to know.
