IBM Stock Price Forecast: International Business Machines Is Exposed To Further Downside

motek 1The IBM stock price forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • The debt load of International Business Machines is worrisome. IBM’s annual sales has been declining since 2011. It will be hard to pare down a total debt of $69.45 billion.
  • IBM had to issue $20 billion in new debt (bond) last year to fund its $34 billion acquisition of Red Hat. This is why IBM’s long-term debt is now more than $52.4 billion.
  • The debt-laden status of IBM plus its lingering inability to reverse the decline in its annual revenue is why its stock is undervalued and under-appreciated.
  • Using debt to grow its cloud business is justified. However, Red Hat is not yet helping cloud revenue grow fast enough to mitigate the decline in IBM’s legacy enterprise business.
  • We can only pray that this pandemic will encourage more companies to subscribe to IBM’s cloud computing solutions.

I firmly believe in the long-term resilience of International Business Machines (IBM). Its core focus on serving enterprise customers is why IBM remains very profitable. The consistent high profitability of IBM is why Seeking Alpha gave it a grade of Very Good in dividends. The high dividend payments of IBM make it very appealing to income-centric investors. IBM’s attractive forward dividend yield of 5.57% and 21 years of dividend growth makes it a buy. However, I recommend waiting for a cheaper buy-in window.

IBM Stock Price Forecast - dividend
(Source: Seeking Alpha)

Let us since on the fence and wait for IBM to become more affordable. This unloved stock is headed for additional downside. The weekly technical indicators and moving averages told me that IBM is a medium-term strong sell. The chart below illustrates that IBM’s stock is under the dark cloud of pessimism. It is best we exploit the depressed emotion of the market for IBM. My fearless forecast is that IBM can dip to 105 within the next 90 days.

IBM Stock Price Forecast - technical indicators
(Source: Investing.com)

Swing traders and hedge fund gamblers who love to use EMA to do their entry and exit points will really insist that IBM is a great short candidate right now. Let us wait for these market speculators to make IBM cheaper. Like it or not, IBM indeed has terrible EMA indicators.

IBM Stock Price Forecast - EMA indicators
(Source: StockTA.com)

Candlestick devotees may also find IBM’s recent Thrusting Bearish pattern last May 14 and Three Upside Down pattern on May 13 to argue that this stock is going south starting next week.

IBM Stock Price Forecast - candlestick patterns
(Source: Investing.com)

Another strong reason why IBM is headed south is that it has a bearish one-year forecast score from I Know First. The predictive algorithm believes that IBM is in for a pull down within the next 12 months. I Know First’s forecasts are very elastic. They may happen tomorrow or they may happen after 11 months. What matters most is that I Know First gives a bearish IBM stock price forecast.

IBM Stock Price Forecast

The Massive Debt Is Why Most Investors Are Allergic To IBM

Let us wait and see if more investors will again pummel down IBM. Cash is hard to raise during this pandemic period. We need to be patient and wait until IBM is made cheaper by its detractors and disbelievers. The worst liability of IBM that makes it unattractive and undervalued is its huge debt. Investors remain wary or furious at IBM because of its very heavy debt handicap. This profitable company may eventually have to reduce its dividend payments because of its debt.

A dividend cut is the only way to accelerate debt reduction. Sad but true, buying Red Hat for $34 billion is still  not helping IBM grow its cloud revenue fast enough to mitigate its declining legacy enterprise IT services/products. IBM’s failure to reverse its declining revenue means paring down its large debt will require it to be less generous on dividend payments. Management knows all too well that IBM’s stock price will not prosper when it cannot make consistent reduction to its very large debt numbers.

IBM is saddled with a long-term debt of $52.44 billion, $8.19 of it is filed under Current Liabilities. IBM’s total debt is $69.453 billion. Some investors are scared that a recession or a depression caused by COVID-19 pandemic could hurt the solvency of IBM. The cash & equivalents of IBM is only $11.865 billion, and its Receivables is just $9 billion. A ruthless bank or institutional lender might strong-arm IBM to reduce its debt load via equity exchange. Heavy debt load exposes a company’s shareholders to share dilution via lender-initiated debt-to-equity calls.

Sit, Wait, and Pounce When IBM Is Weakened Enough

The clear and present danger of share dilution is why IBM has low valuation ratios. The numbers below will go lower as IBM find it’s harder to grow its cloud computing sales. Fence-sitting while others pummel down IBM’s stock price is the best thing we can do right now.

IBM VALUE GRADE
(Source: Seeking Alpha)

We can wait until IBM fall below $105, $100, or $95. IBM is really safe long-term investment. But why buy it at $116 when you can buy it at $100 if you just exercise patience. Going forward, SimplyWall.st is right in its position that IBM is trading  39% below its intrinsic fair value.

IBM share price vs fair value
(Source: SimplyWall.st)

The high fair value calculation of SimplyWall.st is feasible. Using a 5-year Discounted Cash Flow analysis via Finbox.io, I came up with a fair value of $228.70 for IBM’s stock.

(Source: Finbox.io)

Conclusion

Waiting for a few weeks (or even months) will eventually grant us a cheaper buy-in entry points on IBM. The real thesis of this article is…IBM is the perfect wait-and-buy long-term investment. Yes, IBM is debt-laden but it is well-equipped to service those debt. IBM caters to very loyal set of deep-stack enterprise/corporate clients. IBM therefore maintain its high margins and generate enough cash flow to service its debt and current obligations.

IBM is also at the forefront of cloud computing and Artificial Intelligence. We only need to hope and fervently pray that IBM can improve the 7% year-over-year growth in its Cloud & Cognitive Software segment. This segment needs to become an $8 billion/quarter venture to help IBM offset the decline in its legacy IT services/platforms.

(Source: IBM)

Let us just wait patiently and we will own many shares of IBM. We will hold on to them for the dividend payments and exercise more patience. It may take a long time but IBM will eventually rise to its intrinsic fair value of $190 or higher.

Past I Know First Forecast Success With IBM

On 3 March 2019, I Know First algorithm made a bullish IBM stock price forecast for a time frame of 1 month. As shown below, during the time period from 3 March 2019 to 3 April 2019, IBM grew by 3.18%. This confirmed I Know First’s IBM stock price forecast.

IBM Stock Price Forecast - past success
IBM Stock Price Forecast - past result

This bullish IBM stock price forecast was sent to the current I Know First subscribers on 3 March 2019.

Here at I Know First, we developed a stock market forecast software to perform accurate algorithm trading for assets worldwide under short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have also been providing daily forex forecasts and gold price predictions, as well as the latest Apple news and Apple stock forecast. Today, we are producing daily forecasts for over 10,500 assets.