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For the longest time I’ve had a $181 fair value for the shares. Though the stock raced to $210 in early April, it’s traded near my fair value target for most of the past year.
In fairness to IBM, I’ve been too conservative with my estimate.
IBM is a great business that produces gobs of cash. Even Warren Buffett owns some of Big Blue… and he rarely invests in technology companies.
In the most recent quarter, IBM showed investors why its decision to focus on software was a brilliant move.
Though revenue estimates missed by $500 million, EPS beat estimates by $0.09 because of the higher-margin software sales. As part of a decade-long shift, IBM hopes to collect half of their total sales from software by 2015.
That allocation seems likely given their focus on increasing emerging market sales. While developed market sales were down 1%, sales to China increased 24% in the quarter. Successful expansion in red-hot emerging economies is critical to achieving their software sales goal.
The robust quarter and impressive emerging market potential helped push the stock price to $194 resistance today.
This chart shows the price of IBM shares along with an important resistance area for you to monitor.
The 50-day moving average (orange line) will be an important area to watch this week. The stock tends to move higher when above the moving average and lower when below (blue arrows).
No matter what the stock is able to do in the next week or two, the most recent quarterly performance suggests it should find its way near $200 by the end of this year.
Equities mentioned in this article: IBM