International Business Machines (IBM) is leading its fellow Dow Jones stocks in Thursday's session after the technology giant beat top- and bottom-line expectations for its second quarter. What's more, IBM raised its full-year free cash flow (FCF) forecast, which is good news for investors.
In the three months ended June 30, IBM's revenue increased 2% year-over-year to $15.8 billion, driven by 7% growth in its software segment to $6.7 billion. Big Blue also said its earnings per share (EPS) jumped more than 11% to $2.43 and its free cash flow increased 24% from the year-ago period to $2.6 billion.
"We had a strong second quarter, exceeding our expectations, driven by growth in both revenue and free cash flow," IBM CEO Arvind Krishna said in a statement. "We continue to see that clients turn to IBM for our technology and our expertise in enterprise AI [artificial intelligence], and our book of business for generative AI has grown to more than two billion dollars since the launch of watsonx one year ago."
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.
The company's results cruised past analysts' expectations. Wall Street was anticipating revenue of $15.6 billion and earnings of $2.20 per share, according to CNBC.
As a result of its strong performance in the first half of the year, IBM raised its full-year free cash flow forecast. The company now anticipates more than $12 billion in free cash flow, which is the money left over after operating expenses and spending on assets, versus its previous estimate of about $12 billion.
This is important for investors because companies with higher levels of free cash flow will often allocate some of this money toward shareholder-friendly initiatives such as stock buybacks and dividends.
"Our business fundamentals, operating leverage, product mix and productivity initiatives all contributed to significant margin expansion and increased profit and free cash flow," IBM Chief Financial Officer James Kavanaugh said in a statement. "Our strong cash generation enables us to continue investing in innovation and expertise across the portfolio, while returning value to shareholders through dividends."
Indeed, IBM is one of the best dividend stocks for dependable dividend growth, having raised its payout for 29 straight years.
Is IBM stock a buy, sell or hold?
IBM has performed very well in 2024, rising roughly 17% as of this writing, but Wall Street remains on the sidelines. According to S&P Global Market Intelligence, the average analyst target price for International Business Machines is $184.09, which is a discount to current levels. Additionally, the consensus recommendation is a Hold.
Still, there are some bulls to be found, including in financial services firm Stifel, which has a Buy rating and a $205 price target on the blue chip stock.
"At almost a 5% dividend yield, we believe the market is discounting IBM and expects it will remain in secular decline independent of its various growth initiatives and that the current level of FCF generation, which covers capital returns and acquisitions, is unsustainable," Stifel analyst David Grossman said in a note following IBM's second-quarter earnings release.
And while Grossman admits that risk is elevated due to slower-than-anticipated revenue stabilization, he believes "the risk/reward remains attractive, given very negative market sentiment and potential catalysts over the next 12 months, which could drive both estimates and the multiple higher."
Stifel's $205 price target sits roughly 7% above where IBM is currently trading.
Related Content
-
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.
