Summary
- IBM has rallied modestly in the wake of Q4 2018 earnings.
- 2019 guidance was only marginally higher than what was provided for 2018.
- The planned acquisition of Red Hat makes good strategic sense, but comes late, and is overpriced.
- The rally provides an acceptable exit point.
As IBM (NYSE:IBM) gained after earnings, I closed the remainder of my position. February calls at 125, bought for psychological purposes, suddenly increased in value and I sold them for $7, for a quick and easy profit after buying them a week or so before. The psychology of it was, after four years of nagging losses and opportunity costs, culminating toward the end of the year in a bountiful harvest of tax losses, I was not going to sit out the rally around earnings, rubbing salt into my wounds. Here's why I'm done with IBM.
Chronic Lack of Revenue Growth
CFO James Kavanaugh declined to give revenue guidance. He did talk optimistically about increasing revenue and improving margins in 2019, but guidance came in at $13.90 non-GAAP, up from $13.80 last year. So, we get 0.7% increase in earnings, while making fine strides on both revenue and margin. The math doesn't work that way.
