IBM: Upbeat Earnings Suggest the PC Mammoth is Back in Business

It’s good that investors are back to their focus on the ongoing corporate earnings reports. Led by gains in its hybrid cloud business, IBM (IBM) reported yesterday Q2 2021 earnings results that topped Wall Street expectations, and revenue that edged upward from the same period a year ago.

IBM reported a Q2 2021 profit of $2.33 a share, on revenue of $18.7 billion, excluding extraordinary items. Consensus forecast was for the leading PC manufacturer to earn $2.29 a share, on $18.3 billion in revenue. IBM was again ranked number one in IDC's Artificial Intelligence Market for 2020 market share. And IBM has been named a leader in Gartner's 2021 Magic Quadrant for data science and machine learning platforms.

Overall, Q2 Non-GAAP EPS of $2.33 beat the consensus by $0.04; GAAP EPS of $1.47, however, missed by $0.40.bRevenue of $18.7 billion (+3.2% YoY) beat expectations by $400 million. Total cloud revenue for the reporting quarter of $7 billion grew by 13% led by cloud & cognitive software cloud revenues that posted a 29% jump (up 25% in dollar terms). Global Business Services cloud revenue was up even higher at 35%(or 30% in dollar terms).

Financial guidance for the year is as follows: revenue growth remains unchanged to the tune of $11–$12 billion of free cash flow. Adjusted free cash flow expectations exclude approximately $3 billion of cash outflow from the company’s structural actions initiated back in Q4 2020 and the transaction costs associated with the separation of the Kyndryl unit.

All in all, IBM looks to have managed overcoming softening of its main business segments, as well as not-so-impressive launch of its cloud computing efforts, therefore, given the fact that the stock price eased by 6.5% over the past month, while the company's fundamentals with P/E of less than 24 remain strong, it looks reasonable to resume increasing its private portfolio weights.