Analysts are still waiting for IBM's shift to take hold.
Photography by Bloomberg via Getty Images
By Lucinda Shen
April 19, 2016

Despite beating expectations in its first-quarter earnings report, investors were not impressed with IBM (ibm).

Shares of the tech giant dropped 5.3% Tuesday after the tech giant revealed that revenue had fallen for the sixteenth straight quarter, dropping 4.6% to to $18.68 billion as consumers continue to turn away from IBM’s core services, hardware, and software businesses.

And even though IBM may have beat its bottom-line consensus, earnings failed to sway analysts.

“A closer look shows results were generally of low quality, with more than half of the EPS beat coming from a tax benefit,” noted a team of Deutsche Bank analysts led by Sherri Scribner, who reiterated a hold rating on the stock. IBM received a $1.2 billion tax refund in the first quarter due to a long standing tax matter with the Japan Tax Authorities that was resolved in February.

But as its core business becomes more obsolete, IBM is reinvesting an areas that it hopes to grow: cloud computing and cognitive systems, categories that include artificial intelligence and language processing. IBM has also made a series of acquisitions in the past few years, snapping up companies including Aspera, Clever Safe, Clearleap, and Ustream to increase its video capabilities in cloud.

 

Some analysts are still waiting to see how IBM’s aggressive push into its new spaces develops. UBS reiterated a neutral rating on the stock Tuesday, saying the company was still undergoing growing pains: “We give IBM credit for changing the narrative … still the transformation is in the third inning.” UBS raised the stock’s target price to $150 from $132.

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