Shares of tech company International Business Machines (IBM) soared in after-hours trading after it reported earnings for its fourth quarter of Fiscal Year 2024. Earnings per share came in at $3.92, which beat analysts’ consensus estimate of $3.78 per share. In addition, sales increased by 1% year-over-year, with revenue hitting $17.55 billion. This was in line with estimates.
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Infrastructure and consulting revenues proved to be a drag on results. Indeed, the former fell 8% year-over-year, while the latter fell 2%. 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 in the form of dividends. 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 2025
Looking forward, management has provided the following guidance for FY 2025:
- Revenue growth rate of at least 5% on a constant currency basis versus analysts’ estimates of 4.3%
- Free cash flow of approximately $13.5 billion for the full year
As we can see, the company’s outlook is better than expected, which, combined with the EPS beat, led to the after-hours move in the stock price.
Is IBM a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on IBM stock based on four Buys, five Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 25% rally in its share price over the past year, the average IBM price target of $230.20 per share implies 1.3% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
