IBM Posts Third Quarterly Sales Drop In a Row; Shares Fall

Shares of International Business Machines Corp. fell about 3% in extended trading on Monday as its revenues continued to decline for the third consecutive quarter. The company didn’t provide any 4Q outlook citing uncertainty over global economic recovery due to the COVID-19 pandemic.

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IBM’s quarterly adjusted EPS and revenues in 3Q declined 3.7% and 2.6%, respectively, on a year-over-year basis. (See IBM stock analysis on TipRanks).

Nevertheless, IBM’s (IBM) 3Q revenue surpassed Street’s estimates on higher demand for its cloud offerings. Its 3Q revenues of $17.56 billion came marginally ahead of analysts’ estimates of $17.54 billion. Total cloud revenue grew 19% to $6 billion year-on-year, offsetting some of the weakness of its other businesses. The company’s sdjusted EPS of $2.58 surpassed analysts’ expectations of $2.55.

IBM CEO Arvind Krishna said, “The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform.”

On Oct. 8, Evercore ISI analyst Amit Daryanani reiterated his Hold rating and a price target of $137 (9.2% upside potential) after IBM announced the spinoff of its managed-infrastructure services business. In a note to investors, Daryanani wrote, “We are positively biased on this transaction as it created a more focused and (relatively) more agile IBM to go after the hybrid growth opportunity.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys, 7 Holds and 1 Sell. With shares down over 6.4% year-to-date, the average price target of $142.20 implies upside potential of about 13.3% to current levels.