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.

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