Here’s Why IBM Stock Price Gapped Higher

Here’s Why IBM Stock Price Gapped Higher

  • IBM beats market expectations on earnings and revenue
  • Company’s Cloud and Cognitive Software business recorded a 9% increase compared to the prior year
  • Stock trades above $140 for the first time since October last year

Shares of International Business Machines Corp (IBM) opened 3% higher yesterday after the tech giant reported higher-than-expected Q4 earnings. The stock ended the day 3.39% higher to trade at the highest levels since October last year. 

Fundamental analysis: A successful year behind

IBM reported earnings of $4.71 per share, compared to analysts’ estimates of $4.69 per share. Furthermore, the reported revenue of $21.77 billion was also better than $21.64 billion expected by analysts. 

“We also reduced our debt balance by another $3 billion in the quarter for a total reduction of $10 billion since the end of June. This caps off a year with $77 billion of revenue, $12.81 of operating earnings per share, and about $12 billion of free cash flow, in line with our expectations,” said James J. Kavanaugh, Senior Vice President and Chief Financial Officer at IBM.

Analysts were especially focused on the revenue number given that it had previously fallen five quarters in a row. For the current year, IBM said it expects $13.35 in earnings per share, excluding certain items, which is 4.2% higher than what the company earned in 2019. 

IBM’s Cloud and Cognitive Software category recorded a 9% increase compared to the prior year by generating $7.24 billion in revenue.

“We now see long-term revenue growth at IBM as less likely without a more meaningful shift in the portfolio,” commented Morgan Stanley analysts Katy Huberty, after the bank cut IBM’s rating to equal-weight from overweight. 

Technical analysis: Major resistance lies ahead

Since the beginning of this year, IBM has gained 8.7%. The price action stopped its march forward by hitting the 3-year down-slipping trend line that connects higher lows (the thin red line). 

Moreover, the zone around the $145 mark also hosts a 50% retracement level, while the 200-WMA trades above $147. Thus, this area is highlighted with multiple layers of resistance. If broken, the next resistance area is $153 – $157. 

IBM weekly chart (TradingView)

On the downside, the 100-WMA is at $138, and it is likely to provide significant support to the bulls. Any rotation lower should, at least, stop at this level. The mini ascending trend line that connects lower highs, is providing further support at $133. In general, the chart suggests that the $130 – $140 area provides a nice opportunity for those who are looking to buy the IBM stock. 

Summary

IBM reported better-than-expected Q4 earnings as the tech giant beat analysts’ estimates on earnings and revenue. The stock price has reacted positively, as expected, as it gained 3.39% yesterday and may continue to rally in the coming days.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.