IBM (IBM) got almost everything right in its October 15 earnings announcement. And still the shares dropped almost 4% in after-hours trading.
Sales fell 6.9% from the third quarter of 2008 to $23.6 billion. But that still beat Wall Street projections for sales of $23.4 billion.
Earnings for the third quarter climbed by 14% from the third quarter of 2008 to $2.40 a share. That was a penny ahead of Wall Street expectations.
And IBM raised guidance for the full year to at least $9.85 a share. Analysts had been calling for $9.78 a share.
And still the stock fell. Why? I”ve heard two explanations.
I think the drop is nothing but normal sell-on-the news profit taking. Shares of IBM had been up 7% this month. With earnings news behind them, some momentum traders I’m sure decided to sell.
If that’s the case, then today’s sell off in IBM isn’t a sign of any real damage to the technology sector, which has been leading this rally recently. The results won’t provide more fuel for the rally, it’s true, but will leave the sector stuck in neutral waiting for reports from Texas Instruments (TXN) and Microsoft (MSFT) next week.
But I’ve heard a darker explanation. IBMÂ Â announced that new contract signings dropped in the quarter. That could be a sign that IBM customers–and perhaps technology customers as a whole–aren’t ready to step up with new orders quite yet.
Signed service contracts, for example, dropped 7% in the quarter.
Friday isn’t likely to give investors a definite read on market reaction. After a strong move upward like we had in the first half of the week, stocks frequently take a hit on profit taking on Friday. No one wants to risk the week’s gains over the weekend when markets are closed and traders can’t react to news.
Next week, though, is likely to tell the tale.
typo……that’s a buy in the low 120’s in case it wasn’t obvious!
I think IBM is well positioned short and long term and is a good buy in the low twenties. They have invested well in the business intelligence space and most of their customers have significant costs associated with changing to a new supplier. The cycle seems to be turning their way as the long run of the wintel desktop is winding down. What other companies have you seen lately raising estimates and using positive phrases like “at least” when giving those estimates? This will be a mid 130s stock by year end unless the entire market turns south, in which case IBM will be a good safety stock.
grindy, I’ve got two fertilizer stocks and one farm equipment stock. Would love to do more on water in this area but the most obvious play, FLS has run away from me. I’ll keep looking.
Jim I am wondering are you planning on building your “food, the new oil” position anytime soon?
Been researching this in the afternoon (other side of the world gives me time to see these coming out). looks like IBM signed about 1 billion in deals in early Oct.
Your article on the timeline was really useful Jim. Picks like VZ are also looking more and more appealing, especially if we get closer to 1,200 on the S&P