IBM - Strong Quarterly Results And A New CEO

The IBM Food Trust Solution, which Walmart helped develop, makes the food supply process more transparent and traceable in the event of an illness outbreak. Prior to the blockchain technology adoption, it took roughly a week to trace the source of food and blockchain reduces the time to a matter of seconds, mitigating the risk of tainted food reaching consumers. Albertson’s recently joined IBM’s food safety network as well.    

Conclusion:

IBM released a duo of positive events with its better than expected earnings and a change at the CEO position. Investors received each of these events with positive sentiment lifting shares after each event was announced. IBM is continuing to slowly realign itself for future growth with new and emerging end markets while making acquisitions for future growth with a hybrid cloud focus via Red Hat. Red Hat brings its leading platform for hybrid-cloud and multi-cloud with 90% penetration into the Fortune 500. IBM is attempting to reset the cloud landscape via its acquisition of Red Hat and in the process will become the undisputed number one leader in hybrid-cloud which is an addressable $1 trillion market. Red Hat will accelerate IBM’s top line revenue growth and its business shift to higher value with margins expanding and free cash flow generation. Blockchain technology has yet to be broken out as a revenue line item however IBM is a first mover in this promising, emerging technology with partnerships across all industries and recently healthcare.

Investors are pleased with the blended approach of M&A, realigning it business mix to current and future trends while maintaining its dividend payout. IBMs executive leadership has set the growth and value narrative and investors are quickly realizing the value that Red Hat brings to the table while washing away fears that IBM overpaid for the $34 billion acquisition. Long-term imperatives are beginning to bear fruit in emerging high value segments that has fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. The Red Hat acquisition will augment its transition away from its dependency on legacy businesses to the future of hybrid cloud, artificial intelligence and analytics. IBM presents a compelling investment opportunity with a 4.5% dividend yield, share buyback program and continuously acquiring companies to drive the business into the future.

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