“The deal propels IBM as a leading cloud provider and significantly improves its competitive positioning relative to Amazon, Microsoft and Google …. However, based on conversations we have had with investors, the concern has been around the ability for the combined entity to retain Red Hat employees and that IBM may have overpaid at 32x EV/FCF (CY19) for the assets despite the acquisition’s transformational potential,” KeyBanc Capital Markets analyst Arvind Ramnani wrote in a note distributed to clients on Thursday.
In 2018 the company got $39.8 billion in revenue, or about half of the total — from areas it calls strategic imperatives, which are social, mobile, analytics and cloud. Cloud revenue of $19.2 billion for the year was up 12 percent.
With respect to guidance, IBM said it’s looking to generate at least $13.90 in earnings per share, excluding certain items, in all of 2019. Analysts were expecting IBM to forecast $13.79 in earnings per share, excluding certain items, for 2019, according to Refinitiv. The company’s free cash flow estimate of $12 billion for 2019 was under the $12.97 billion FactSet estimate.
“We believe the ongoing growth of the Strategic Imperatives unit will return IBM to organic growth in 2019 despite … currency headwinds,” Nomura Instinet analysts led by Jeffrey Kvaal wrote in a Jan. 15 note.
IBM stock is up 7 percent since the beginning of the year.
Executives will discuss results with analysts on a conference call at 5 p.m. Eastern time.
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