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
-
2025 Tax Reform: Will the SALT Deduction Cap Be Repealed?Tax Deductions Some lawmakers say it’s time to end the $10,000 cap on state and local tax deductions.
-
Affordability Crisis: Florida Votes to Increase Property Tax BreakState Tax Property taxes have skyrocketed nearly 60% within the last five years in Florida, and its constituents are finally doing something about it.
-
Three Charitable Giving Strategies for High-Net-Worth IndividualsIf you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
-
The Wealth-Building Powers of Health Savings Accounts (HSAs)Health savings accounts could be the most underutilized wealth-building tool out there. Here’s who should use them and how to maximize their benefits.
-
Seven Ways to Be an Absolute Jerk as a LawyerHere's what law students need to know about damaging their relationships with other lawyers and judges and running up the bill for clients.
-
Stock Market Today: Stocks Are Positively Mixed to Open DecemberTechnology led the way Monday as two of the three main equity indexes closed higher.
-
The Best Retail Stocks to Buy This Holiday SeasonE-commerce is a growing trend, but most folks still prefer to shop in stores. That makes these dominant retail stocks worth a closer look.
-
One Good Way to Withdraw Retirement Assets (and a Bad One)Don't withdraw retirement assets haphazardly. Managing distributions intentionally can lower your taxes, conserve your wealth and reduce Medicare premiums.
-
What Is Capital Gains Tax Deferral?Spoiler alert: It's the secret weapon of savvy real estate investors. Here's how it works and details about the tools you need to do it.
-
Don't Leave Your Heirs an IRA Tax BombYour traditional IRA has served you well, but when your heirs inherit it, watch out. Consider some of these strategies to minimize their tax burdens.
