IBM (NYSE: IBM) stock price soared sharply after beating revenue and earnings estimates for the final quarter of 2019. IBM share price rally is also supported by positive revenue growth in Q4 after five connective quarters of decline. In addition, the updated outlook for fiscal 2020 added to investor’s sentiments. The company’s strategy of taking benefit from the increasing demand for cloud products is helping in turning things around.
IBM stock price is currently trading around $140, down from 52-weeks high of $150. IBM’s share price looks significantly undervalued considering the price to earnings ratio of 10. The shares are also appearing attractive based on price to sales and book ratios.
Q4 Results and Updated Outlook Could Add to IBM Stock Rally
The company topped fourth-quarter revenue and earnings estimate by $160 million and $0.02 per share, respectively. Its Q4 revenue of $21.78 billion increased by 0.1% from the year-ago period. Its revenue grew for the first time in the past five quarters in a row. The revenue growth is driven by Red Hat acquisition and cloud revenue.
On top, the company also experienced a 190 basis point improvement in its operating margins. Its earnings per share from continuing operations stood around $4.11 per share.
“Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise,” said Ginni Rometty, IBM chairman, president, and chief executive officer. ”
Returns are Safe
The growth in financial numbers would help in enhancing cash returns for investors. The company has increased dividends in the past 20 consecutive years. Investors should expect a mid-single-digit dividend increase by the end of the first quarter. Its cash flow generation potential is strong enough to cover dividend payments and investments in growth opportunities. The company had generated a free cash flow of $11 billion in fiscal 2019.
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