International Business Machines Corporation (IBM) operates in the cloud and cognitive software, global business services; systems; and global financing segments. It also designs advanced semiconductors in partnership with IBM research.

The stock market has been torrid since the beginning of the year due to various macroeconomic and geopolitical factors. The consumer price index rose 9.1% from the year-ago period in June, coming in higher than the analyst estimates of 8.8%.

The Federal Reserve has increased the benchmark interest rates thrice this year, and more interest rate hikes are in the offing to tame the surging inflation. The Fed’s aggressive rate hikes have affected tech stocks significantly.

The tech-heavy Nasdaq Composite is in the bear market territory, having fallen 28% year-to-date to close the last trading session at 11,251.19. However, tech giant IBM has gained 4% year-to-date and 9.9% over the past three months to close the last trading session at $139.06.

Here’s what could influence IBM’s performance in the upcoming months:

Robust Financials

IBM’s total revenue increased 7.6% year-over-year to $14.19 billion for the first quarter ended March 31, 2022. The company’s non-GAAP gross profit increased 4% year-over-year to $7.51 billion.

Also, its non-GAAP net income increased 25% year-over-year to $1.30 billion. In addition, its non-GAAP EPS came in at $1.40, representing an increase of 25% year-over-year.

Favorable Analyst Estimates

Analysts expect IBM’s EPS for fiscal 2022 and 2023 to increase 23.1% and 8.1% year-over-year to $9.76 and $10.55, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 6.2% and 3.3% year-over-year to $60.93 billion and $62.95 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.

Mixed Valuation

In terms of forward non-GAAP P/E, IBM’s 14.04x is 16.4% lower than the 16.79x industry average. Likewise, its 10.61x trailing-12-month EV/EBITDA is 10.5% lower than the 11.87x industry average. And the stock’s 5.90x forward P/B is 62.7% higher than the 3.62x industry average. Also, its 15.35x forward EV/EBIT is 5.3% higher than the 14.57x industry average.

High Profitability

In terms of trailing-12-month gross profit margin, IBM’s 54.48% is 7.5% higher than the 50.67% industry average. Likewise, its 3.17% trailing-12-month Capex/S is 34.2% higher than the industry average of 2.36%.

Furthermore, the stock’s trailing-12-month ROCE and ROA came in at 24.59% and 4.14%, compared to the industry averages of 7.16% and 2.99%, respectively.

POWR Ratings Reflect Uncertainty

IBM has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. IBM has a C grade for Value, in sync with its mixed valuation.

It has a B grade for Quality, consistent with its high profitability.

IBM is ranked #27 out of 81 stocks in the Technology – Services industry. Click here to access IBM’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

Despite the tech rout since the beginning of the year, IBM’s stock has remained resilient. However, with the Fed expected to hike interest rates many more times this year, it could be wise to wait for a better entry point in the stock.

How Does International Business Machines Corporation (IBM) Stack Up Against its Peers?

While IBM has an overall POWR Rating of C, you might want to consider investing in the following Technology – Services stocks with an A (Strong Buy) and a B (Buy) rating: Jabil Inc. (JBL), Celestica Inc. (CLS), and PC Connection, Inc. (CNXN).

IBM shares rose $0.03 (+0.02%) in after-hours trading Friday. Year-to-date, IBM has gained 7.23%, versus a -18.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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