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
- Earnings Calendar and Analysis for This Week
- Analysts' Top S&P 500 Stocks to Buy Now
- Is Tesla Stock a Buy After Blowout Earnings?
-
Eight Ways To Save on Your Next Luxury TripLooking for ways to stretch your retirement dollars? Follow these tips to get a deal on your next vacation.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
What's Next for Stocks After a Chaotic SpringA chaotic tariff policy buffets investors looking for clarity on the economy and inflation.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Where to Invest in an Uncertain MarketIn an uncertain market, you can still pocket juicy payouts ranging from 4% to 14%, depending on risk.
-
My First $1 Million: Events Industry CEO, 65, Northern New JerseyEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Stock Market Today: Investors Look on the Bright SideA generally good week closes on another positive note, as investors, traders and speculators look for fresh catalysts.
