IBM stock price analysis: Is the 4.50% yield too attractive to ignore?

By:
on Sep 11, 2023
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  • IBM share price has been in a strong bullish trend in the past few months.
  • Investors believe that the company will benefit from artificial intelligence.
  • The stock will likely continue rising in the coming months.

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IBM (NYSE: IBM) stock price has been in a strong bullish trend this year, making it one of the best-performing big technology companies in Wall Street. The shares are sitting at their highest level on record, having soared by over 24% from the lowest level in May.

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Turnaround continues 

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IBM’s management has been implementing a turnaround strategy as it attempts to position the company for growth. As part of this approach, the company made a spin off of Kyndryl, the infrastructure service provider that is now valued at over $3.85 billion. It also sold its healthcare software assets for $230 million and acquired Apptio.

IBM has also benefited from the ongoing artificial intelligence (AI) hype that is spreading around the world. Some analysts believe that the company is well-positioned to achieve growth, thanks to huge Intellectual Property (IP) portfolio. Some analysts have noted that the company is a one-stop shop of AI IPs.

The most recent results showed that the company is not growing as fast. Its revenue came in at $15.5 billion in the second quarter, leading to a $2.4 billion of operating pretax income of $2.4 billion. 

IBM Consulting’s revenue rose by 6% while its infrastructure sales dropped by 14%. Hybrid Platform & Solutions revenue rose by 7% while Red Hat jumped by 11%. Automation revenue jumped by 2% while data and AI and security jumped by 11% and 1%.

Its gross margins rose by 140 basis points. Its free cash flow came in at $2.1 billion in the quarter and almost $3.5 billion in the first half of the year. The company returned about $3 billion in the first half of the year while its debt balance jumped to $57 billion.

A key benefit of IBM stock is that it is one of the cheapest companies in the industry. It has a trailing PE of 16.50 and a forward PE multiple of 15.43. The sector median is 19.58 and 23, respectively.

IBM also offers strong dividend payouts. It has a forward dividend yield of 4.50% and a payout ratio of 73.85%.

IBM stock price forecast

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IBM stock

The daily chart shows that the IBM share price has been in a strong bullish trend in the past few months. It has soared from a low of $109.92 in October last year to over $147. The current price is important because it was the highest point on December 12 last year.

IBM stock price has formed a golden cross, which happens when the 200-day and 50-day moving averages make a crossover. The Relative Strength Index has also been in a strong uptrend.

Therefore, the shares will likely continue rising as buyers target the key resistance at $160. This view will be confirmed if the price moves above $150.

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