This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

IBM's Still Stuck in Quicksand

NEW YORK (TheStreet) -- Back in May, as shares of IBM (IBM) broke above well above $200 per share, I argued that the bellwether company had gotten overrated. While there's no denying that Big Blue is still posting solid annual profits, revenue has been completely non-existent. This is despite management spending upwards of $16 billion over the past five years in acquisitions.

Interestingly, though, unlike, say, Hewlett-Packard (HPQ) and Microsoft (MSFT), which are constantly in analysts' crosshairs for criticism, the Street has never raised a voice towards IBM to complain about its underperformance. Nor has the stock ever gotten cheap, at least until recently.

While I do believe IBM's 8% pullback since my May article has lowered the stock to a more attractive level, I don't see any near-term catalysts to spur me to buy. With the company due to report its third-quarter results on Wednesday, IBM needs to show not only that it can develop a competitive edge against the likes of Oracle (ORCL) in the enterprise, but management needs to address emerging threats in the cloud from (among others) Salesforce.com (CRM).

The good news is that, on more than one occasion, management has highlighted these specific points on which it needs to focus. So it's not as if IBM does not have a plan. The problem has been the execution, which has failed to manufacture growth. And when you couple the struggle to grow revenue with declining margins, you have to question either the credibility of that plan or the competence of management. On Wednesday, both will be on display.

As has been the case for the past couple of quarters, the Street's expectations seem optimistic. While the earnings-per-share estimate has remained unchanged over the past 30 days, estimates have inched up by 3 cents per share and now call for a profit of $3.96 per share, which would represent a 9% increase from the company's profit of $3.62 per share a year ago.

Revenue, meanwhile, remains the somber story. The Street is expecting revenue to come in at $24.73 billion, which is a minimal decline of less than 1%. The good news here is that if IBM does reach its revenue target, it would suggest meaningful sequential improvement when considering that revenue declined 3% in the July quarter. But this goes back to my original point and what has been -- in my opinion -- an undeserved love-fest with this company.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,985.61 +78.99 0.47%
S&P 500 1,972.83 +9.12 0.46%
NASDAQ 4,419.0340 +27.5710 0.63%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs