International Business Machines (NYSE: IBM) reported Q3 results after the bell on Thursday. Net sales decreased 7% when compared to the year-ago period. Okay, that doesn't sound like a great start. Wait, though, because things are about to get better from here.
Sales actually increased 1% on a sequential basis. Net profit on a dollar basis went up 14%. Net margin improved. And on a per-share basis, net income jumped 18% to $2.40. According to our earnings preview, this was two pennies ahead of analyst projections.
Wow, IBM is doing well, huh? This tech business, which counts Microsoft Corporation (NASDAQ: MSFT), Apple, Inc. (NASDAQ: AAPL), and Hewlett-Packard Company (NYSE: HPQ) as related companies, is managing itself pretty respectably through the downturn.
Here are some more highlights. Free cash flow is up substantially, both on a three-month and a nine-month calculation. Full-year guidance has been increased from $9.70 per share to $9.85 per share. Long-term debt is down, too, although cash and cash equivalents also experienced a decline. That's okay, though, I still like the overall quality of IBM's balance sheet.
This was a killer quarter in my opinion, and I think long-term shareholders have nothing to complain about. Yes, I want to see the top line do better. It should over time. We still have to wait out the lingering effects of the recession.
During Thursday's after-hours session, Wall Street was selling into the earnings release. Shares of IBM lost 4.3% of their value at the time of this writing. It will be interesting to see how the shares do during the regular session on Friday.
I don't perceive any reason to be bearish on IBM right now. I think some players out there may simply be booking profits. It's understandable. With the Dow above 10,000, you've got to wonder if the timing might be proper in terms of taking a little off the table to be safe.
Technically, selling IBM could be good strategy, but fundamentally, this tech company is doing all the right things to protect the bottom line. I believe IBM is definitely worth a round of due diligence, especially with an eye toward a long-term position.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
10-15-2009 @ 6:16PM
Peggy Fields said...
No I won't sell my shares. IBM has the lowest PE in any of the IT industries. The IT Services industry has a PE of 31.8 with a lower yield than IBM. The Computers and Peripherals Industry has a PE of 22.4 with a lower yield. Look up any of your favorite stocks, HPQ, AAPL, whatever and they all have much higher PEs with lower yields. AAPL has a PE of 33 with no dividend! For an Iphone? An Ipod?...ridiculous! IBM is in Businessweek's Sept issue as the number 2 company of the top 100 best global brands.
And the PE is now between 12 and 13 as though it were a value instead of a growth stock.
IBM serves banking, insurance, education, government, healthcare, life sciences, aerospace and defense, automotive, chemical and petroleum, electronics, distribution, telecommunications, media and entertainment, and energy and utilities, as well as small and medium sized business, in 170 countries. By owning IBM, I have invested all over the world in leading technology and services in every industry. I am diversified.
10-15-2009 @ 9:30PM
Beltway Greg said...
Well Peggy not really. IBM has increasing become a service orientated company. The stock dropped because companies aren't renewing the contracts. You're not diversified. IBM is one company. You could say the same thing about any number of multi-national companies and don't get hung up on the P/E. It's only one measure. A company with a high P/E doesn't need a dividend. Would you like 30-40%/year stock appreciation which isn't taxed or a 3-4% yield that is? Look at how True Religion jeans have done during this economic mess? If your product connects with the customer it doesn't matter what you sell. Look at Green Mountain Coffee.