Ibm Stock Analysis

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April 22, 2013

International Business Machines Corp.
SUMMARY
Current Recommendation Prior Recommendation Date of Last Change Current Price (04/19/13) Target Price

(IBM-NYSE)

NEUTRAL
Outperform 10/08/2009 $190.00 $200.00

IBM reported a dismal first quarter missing the Zacks Consensus Estimate on both lines. Revenue growth was particularly weak, due to execution problem and lackluster demand. We believe that sluggish IT spending remains the major headwind in the near term. Additionally, increasing competition in the hardware segment is another significant concern going forward. IBM continues to expand its Power systems into the Linux market. The company is also focusing on further developing its flash technology and storage business. However, we believe that these initiatives will take some time to boost hardware top-line growth. Nonetheless, we believe that strong backlog, improving outsourcing signings and new contract wins will boost the top line and profitability going forward. We maintain our Neutral recommendation and set a price target of $200.00. Risk Level * Type of Stock Industry Zacks Industry Rank * Low, Large-Growth Comp-Integt Sys 47 out of 267

SUMMARY DATA 52-Week High 52-Week Low One-Year Return (%) Beta Average Daily Volume (sh) Shares Outstanding (mil) Market Capitalization ($mil) Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%) Annual Cash Dividend Dividend Yield (%) 5-Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2013 Estimate P/E using 2014 Estimate Zacks Rank *: Short Term 1 3 months outlook * Definition / Disclosure on last page

$215.80 $183.09 -3.02 0.69 3,987,050 1,115 $211,757 4.13 59 N/A $3.40 1.79

ZACKS CONSENSUS ESTIMATES
Revenue Estimates
(In millions of $)

Q1 (Mar)

Q2 (Jun) 26,666 A 25,783 A 25,306 E

Q3 (Sep) 26,157 A 24,747 A 25,108 E

Q4 (Dec) 29,486 A 29,304 A 29,729 E

Year (Dec) 106,916 A 104,507 A 103,551 E 106,238 E

2011 2012 2013 2014

24,607 A 24,673 A 23,408 A 24,140 E

1.1 14.8 14.1 12.4 11.4 10.3 3 - Hold

Earnings Per Share Estimates
(EPS is operating earnings before non-recurring items, but including employee stock options expenses)

2011 2012 2013 2014

Q1 (Mar) $2.31 A $2.78 A $3.00 A $3.28 E

Q2 (Jun) $3.09 A $3.51 A $3.96 E

Q3 (Sep) $3.28 A $3.62 A $3.93 E

Q4 (Dec) $4.71 A $5.39 A $5.81 E

Year (Dec) $13.39 A $15.30 A $16.70 E $18.37 E 9.3

Projected EPS Growth - Next 5 Years %

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RECENT NEWS
IBM reported dismal first quarter 2013 results on Apr 18, 2013. Earnings of $3.00 per share missed the Zacks Consensus Estimate by $0.06 (2.0%) in the reported quarter. Earnings jumped 7.9% from the year-ago quarter driven by margin expansion ($0.23 per share) and aggressive share repurchase ($0.13 per share), which fully offset weak revenue growth (negative impact of $0.14 per share). On a sequential basis, earnings plunged 44.3% primarily due to lower revenues. Revenues Revenues of $23.41 billion also missed the Zacks Consensus Estimate of $24.59 billion. Revenues declined 5.1% from the year-ago quarter and 20.1% on a sequential basis. Unfavorable foreign currency movement, particularly in yen, had a negative impact of 2.0% on first quarter revenues. None of the major segments achieved growth in the quarter. Software declined a modest 0.5% year over year but a huge 29.6% quarter over quarter to $5.57 billion (up 1% on a constant currency basis). IBM achieved growth in some of the key areas that include smarter commerce, social business, security and storage management. However, IBM s inability to close certain software transaction (worth approximately $400.0 million) fully offset this strong growth in the reported quarter. Revenues from IBM s middleware products [WebSphere, Information Management, Tivoli, social workforce...
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