Shares of tech company International Business Machines (IBM) sank in after-hours trading after it reported earnings for its third quarter of Fiscal Year 2024. Earnings per share came in at $2.30, which beat analysts’ consensus estimate of $2.23 per share. In addition, sales increased by 1.5% year-over-year, with revenue hitting $14.97 billion. However, this missed analysts’ expectations of $15.1 billion.
Infrastructure and consulting revenues proved to be a drag on results. Indeed, the former fell 7% year-over-year, while the latter remained flat. Only the software segment saw growth, which jumped by 10%, and now makes up about 45% of IBM’s total revenue.
Furthermore, during the third quarter, IBM returned over $1.5 billion to shareholders, with dividends making up the entire amount. IBM is considered a very reliable dividend stock with earnings that can cover the payments. Interestingly, though, the current dividend yield seems to be near the bottom of its historical range since 2017, which suggests that the stock is relatively overvalued at the moment.
IBM’s Guidance for Q4 2024
Looking forward, management has provided the following guidance for Q4 2024:
- Revenue growth to be consistent with that of the third quarter versus analysts’ estimates of 18.9%
- Free cash flow of more than $12 billion for the full year, which implies at least $5.4 billion during Q4
As we can see, the company’s outlook is worse than expected, which, combined with the revenue miss, led to the after-hours move in the stock price.
Is IBM a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Hold consensus rating on IBM stock based on five Buys, seven Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 75% rally in its share price over the past year, the average IBM price target of $217.15 per share implies 6.52% downside risk. However, it’s worth noting that estimates will likely change following today’s earnings report.
