NEW YORK (TheStreet) -- International Business Machines (IBM) - Get International Business Machines (IBM) Report shares are up in early market trading on Monday, 0.99% to $164.50, after company CEO Virginia Rometty said that it will share technology with China in an effort to build that country's IT industry, according to Reuters.
IBM's new strategy in the country will allow IT developers there to use IBM's intellectual property as a template to develop software and hardware.
The move is an apparent reversal from the company's previous stance on business partnerships with the country of 1.4 billion people as China has also previously been agitating for more domestic development of technology in the wake of Edward Snowden's leaks about U.S. government surveillance of the country.
"If you're a country, as China is, of 1.3 billion people you would want an IT industry as well. I think some firms find that perhaps frightening. We, though, at IBM ... find that to be a great opportunity," said CEO Rometty.
IBM sales in China fell after Snowden released classified information on the NSA's surveillance operations, though the company's fortunes in the country seem to be stabilizing recently, according to Reuters.
The Street's Jim Cramer, Portfolio Manager of Action Alerts PLUS Charitable Trust Portfolio, believes that company's continued focus on cloud computing and data management will be more impactful on the stock price going forward than its foray into China.
"I think that what matters with IBM is getting their cloud and data management business to grow faster than any other business to the point where it can move the needle. They are trying to move furiously toward that but I think they need to buy something like Twitter (TWTR) - Get Twitter, Inc. Report (read more about Jim's take on Twitter here) to get there," said Cramer.
Separately, TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate INTL BUSINESS MACHINES CORP (IBM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the IT Services industry and the overall market, INTL BUSINESS MACHINES CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 58.23%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.73% is above that of the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 19.9%. Since the same quarter one year prior, revenues fell by 11.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has declined marginally to $6,059.00 million or 7.18% when compared to the same quarter last year. Despite a decrease in cash flow of 7.18%, INTL BUSINESS MACHINES CORP is in line with the industry average cash flow growth rate of -16.33%.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, IBM has underperformed the S&P 500 Index, declining 13.49% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: IBM Ratings Report
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