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Commentary

IBM: Pullback Hasn’t Created Buying Opportunity

Despite IBM's ongoing repositioning, too many lingering questions remain for investors to buy at the current price, writes Morningstar’s Andrew Lange.

Mentioned:

 IBM's (IBM) first-quarter fiscal 2016 results continued to reflect its ongoing repositioning efforts with mixed operating results. On the one hand, IBM’s strategic imperatives (analytics, cloud, mobile, security, and social solutions) impressed, but on the other hand, its core business (transaction processing, systems integration, and hardware revenue) weighed on the firm’s overall result. 

Strategic imperatives now count for $30 billion in revenue and we expect this to grow to $40 billion in fiscal 2018 as the firm pursues a hurried acquisition strategy surrounding these services (IBM made six acquisitions in the quarter). We think this revenue growth will help alleviate long-term secular headwinds in the company’s core operations, but we hesitate to make any rash predictions about reinvigorated long-term top line or bottom line growth expectations. We still have concerns about the long-term pricing and rationality of the strategic imperatives market given its highly competitive nature. In addition, all other IT service peers are making similar investments. 

Andrew Lange does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.