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IBM Plunges: What Wall Street's Saying (Update 1)

Stocks in this article: IBM

Updated from 8:01 a.m. to include notes from Herb Greenberg, updated share price and related video.

NEW YORK (TheStreet) -- IBM (IBM) shares were plunging 3.1% to $182.53 in early trading Wednesday as the software and services giant reported fourth-quarter earnings that beat Wall Street estimates, but concerns over the company's business continued to weigh on investors' minds.

Fourth-quarter results for the Armonk, N.Y.-based firm showed earnings of $6.13 a share on $27.7 billion in sales, well short of the $28.25 billion analysts were expecting. Cloud and software continued to help IBM's hardware business, as cloud revenue jumped 69% year over year to $4 billion. Revenue from software rose 3% to $8.1 billion, but Systems and Technology revenue plunged 26% year over year to $4.3 billion.

IBM Chart

Reports came throughout the day Tuesday that IBM is looking to divest its x86 server segment, with both Dell and Lenovo reported to be among the suitors.

For the 2014 fiscal year, IBM expects operating earnings of at least $18 a share, compared to $16.28 a share for 2013. Analysts surveyed by Thomson Reuters are looking for full year earnings of $18.02.

Despite the earnings beat, Wall Street analysts were largely unmoved, as the company's tax rate during the fourth quarter helped boost earnings considerably, and concerns about the company's business model continue to weigh on sentiment. TheStreet's Herb Greenberg noted that Wall Street is getting tired of IBM's managed earnings and is begging the company to show revenue growth.

Here's what several analysts on Wall Street had to say:

BMO Capital Markets analyst Keith Bachman (Market Perform, $195 PT)

"We remain Market Perform rated on IBM, and maintain our target price of $195. Based on our EPS estimates, IBM stock appears inexpensive based on 11x our FY14 estimate and 10x our newly introduced FY15 estimates. However, based on EV/FCF, IBM trades at a multiple that is expensive, in our opinion, at 15x our FY15 FCF estimate of $15.7 billion (GAAP FCF estimate). Therefore, we do not see the valuation as overly compelling. Further, IBM continues to miss our and Street revenue estimates, which we believe will continue. Until IBM can both meet consensus revenue estimates and deliver y/y revenue growth, we don't think the stock can work."

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