The Exchange

Can the IBM Earnings Engine Restart Any Time Soon?

The Exchange

By Tom Brakke

Tom Brakke, CFA, is the principal at tjb research, a management consultancy specializing in the investment world. For more thoughtful analysis and top notch curation, do follow him on Twitter.

IBM % Total Return vs. the S&P 500

IBM (IBM) has been a noticeable underperformer of late. In fact, as you can see in the top panel of the chart above, that weakness has been evident for two years. Before that, it had been a champ for years and years following its brutal decline (as a company and as a stock) in the early 1990s.

An earlier pix illustrated one reason that the stock did well — a persistent decline in the share count. In addition, like a lot of companies, Big Blue kept the margin lines of the income statement moving higher for a very long time.

Sales? Not so much, as you can see in the bottom panel, which shows the growth over time in four key measures. They are up only 42% since the end of 1995 and have flattened out since 2011.

The cash flow measures started to decline in mid-2012. Now look at the net income line, which seems to have been in a world of its own. It could only diverge from the other lines for so long.

I don’t know whether IBM shareholders will continue to sing the blues. One has to wonder whether the earnings story can be restarted any time soon.

In that regard, the company is slated to report on October 16th and analysts expect “adjusted” EPS to be up a bit over nine percent. The crowd — at least according to Estimize — is even more optimistic. (Chart: Bloomberg terminal.)

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