International Business Machines (IBM) is reporting some good news, on a day when the same cannot be said about fellow Dow components Citi (C) with persistent nationalization rumors and General Motors (GM) losing nearly $10 billion more in the last quarter. The contrast between IBM and the others is stark, as IBM reaffirmed today that earnings per share guidance will remain at $9.20. This from CNBC’s Squawk on the Street:
“Encouraging news coming from IBM which is confirming its earnings per share guidance for fiscal year consistent with 2008 results. You can see the stock popping on this news. IBM says that in this first quarter sees growth and services, the services business, total signings with strong double digit growth in long-term signings as well. The company says it has been divesting certain businesses including PC’s, hard disk drives and printer, and the company says it is buying back shares. IBM trading at $88.32. That’s a 3% jump on the session and that certainly helps the overall markets… Getting the earnings per share numbers. $9.20 a share for the full year. So IBM, how is this possible?… IBM seems to be the lone company right now, the lone wolf.”
It just seems that IBM is making all of the right moves in these difficult times. Clearly, the Wall Street analysts were not anticipating news this good as the average estimate is $9.05, and some were as low as $8.17 per share. The services portion of the business is driving IBM’s strength right now, which could bode will for Hewlett-Packard’s (HPQ) recent acquisition of EDS. As opposed to sales of PC’s, revenue from service contracts are a steady stream, so investors get especially excited about this sort of growth. As mentioned above, the stock is getting a nice pop from this news and is trading around $90 per share. Even with IBM making all of the right moves, there stock is still only getting less than 10x expected earnings. So, while we are not saying they are the most Undervalued in our universe of coverage, they seem to be a leader of the pack in terms of performance.