IBM shares tumble on 3Q results, growth worries

IBM shares drop after disappointing 3rd-qtr revenue results prompt worries about growth

Associated Press

NEW YORK (AP) -- IBM shares tumbled as the market opened Thursday, after the computing company reported a better-than-expected profit, but its revenue again fell short of Wall Street expectations.

THE SPARK: Excluding one-time charges, the Armonk, N.Y., company earned $3.99 per share, above expectations of $3.96.

Revenue dropped 4 percent to $23.7 billion from $24.7 billion. That fell short of the $24.8 billion expected by analysts surveyed by FactSet. Adjusted for the effects of foreign currency exchange rates, the company said revenue fell 2 percent.

THE BIG PICTURE: IBM is the world's largest technology-services company. Its results provide a gauge of businesses' appetite for technology spending. IBM has grown its earnings each quarter in the past decade, a streak that likely extended through the first quarter of this year.

But the revenue shortfall prompted a pair of analysts to cut their price targets for the stock.

THE ANALYSIS: Jefferies analyst Peter Misek backed his "Hold" rating, but cut his price target by $20 to $190. He noted that the only reason IBM's profit managed to beat expectations was because it got a boost from a lower-than-expected tax rate.

Citi's Jim Suva kept his rating at "Buy," but lowered his price target by $15 to $235. He said he doubts that the stock will fall much further and said it should eventually get a boost from improved visibility in regards to China and improvements in other markets, along with the company's own restructuring.

SHARE ACTION: In morning trading, IBM shares dropped $13.62, or 7.3 percent, to $173.11, after initially trading as low as $172.58. That's the lowest price the stock has seen since the spring of 2011. Shares traded as high as $215.90 in March.

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