Can International Business Machines Recover After Its Sell-Off?

July 29, 2022 at 01:00 AM EDT

International Business Machines (NYSE: IBM) has been sold off recently which has put the stock on investors' radars. Adding to the bearish sentiment for the stock is the fact that insiders at the company are selling shares. $311.11M shares were sold last quarter. Despite this, the company retains a 12.9% upside to the consensus price target of $146.10. In this article we'll explore the forces that are working for and against the company to exceed this consensus set by Wall St.

The Positives of IBM

No analysis of IBM would be complete without a look at it above-board profitability compared to the industry sector. IBM's cash from operations stands at 9.83B, compared to sector median of 67.96M. This inflow of cash to the company is helped through its EBITDA margin of 20.37%, while the sector lags behind at 12.95%.

Due to the sell-off of shares for the IBM it also trades at a steep discount, which positively changes it valuation. The company's FWD P/E ratio is 19.96 compared with the industry sector of 21.62. Due to the strength of the company's cash-generating activities its FWD Price / Cashflow is also exceptional at 10.32 compared with 17.46 for the sector. All of this cash also means it's able to return a high dividend to investors. The company's FWD dividend yield is 5.11% compared to the sector median of just 1.44%. It also has 23 consecutive years of dividend growth and a healthy payout ratio of 68.68%.

The Downsides of Investing in IBM

Despite the obvious strengths of the company in terms of profitability, dividends, and cashflow, there are some weaknesses of this stock that should be addressed. The company's FWD revenue growth is negative at -5.48% compared to the sector median of 14.67%. This factor also affects IBM's operating cash flow growth of -9.18% while the sector median is 14.12%.

Analysts have also made a number of negative revisions to this stock. There have been 14 down EPS revisions and 12 down revenue revisions. Over the last 90 days analysts have given the stock a consensus Hold rating with 11 hold ratings, 4 strong buy ratings, and 2 buy ratings. The stock was also given one sell rating and one strong sell rating.

IBM Vs. Infosys

Infosys (NYSE: INFY) is a competitor to IBM in the IT sector. INFY is considerably smaller than IBM with a market cap of 77.31B compared with 116.62B. The YTD return for both stocks are presently negative, with a deeper sell-off for INFY than IBM. INFY is currently down -25.25% while IBM is down -1.05%. On a longer timeframe, INFY has delivered considerably greater returns to investors than IBM. Over the last three years, IBM returned 72.33% while IBM returned 3.53%.

One area that IBM shines over INFY is its dividend. IBM's dividend rate is $6.50 compared to INFY's dividend of $0.40. These differences are also carried over to the dividend yields of the companies. The dividend yield of IBM is 5.03% and INFY's yield is 2.16%.

IBM also beats INFY in terms of valuation. IBM's FWD P/E ratio is 19.96, while INFY has a yield of just 25.34.