How Will IBM (IBM) Stock React To Possible Server Ban In China?

NEW YORK (TheStreet) --China's government is looking into whether or not high end servers from International Business Machines Corp. (IBM) used by domestic banks compromise the nation's financial security, Bloomberg reports.

The People's Bank of China, the Ministry of Finance, and other government agencies are asking banks to remove IBM's servers and replace them with local brands while the government conducts its review.

China's investigation into its national security comes one week after the U.S. indicted five military officers from China based on allegations they hacked into several U.S. companies in order to steal secrets.

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IBM spokesperson Jeff Cross told Bloomberg his company is "not aware" of a Chinese policy urging against the use of IBM's servers.

Shares of IBM are down -0.95% to $184.18 on Tuesday.

TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTL BUSINESS MACHINES CORP (IBM) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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 52.66%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 10.60% trails the industry average.
  • INTL BUSINESS MACHINES CORP's earnings per share declined by 14.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $15.02 versus $14.41 in the prior year. This year, the market expects an improvement in earnings ($17.92 versus $15.02).
  • Despite the weak revenue results, IBM has outperformed against the industry average of 16.4%. Since the same quarter one year prior, revenues slightly dropped by 3.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $3,326.00 million or 17.32% when compared to the same quarter last year. Despite a decrease in cash flow of 17.32%, INTL BUSINESS MACHINES CORP is in line with the industry average cash flow growth rate of -20.87%.
  • You can view the full analysis from the report here: IBM Ratings Report
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