IBM: Breaking Up Is Easy To Do

11/17/20

By Bill Zettler, SeekingAlpha

Summary

  • How have other tech spin-offs performed?
  • How might the spin-off benefit IBM itself?
  • What's left after the spin-off is the sexy stuff, cloud, AI, and Redhat.
  • This deal should ensure the dividend increases going forward.
  • Looking for more investing ideas like this one? Get them exclusively at Turnaround Stock Advisory. Get started today »

IBM (IBM) is one of the most written about stocks on Seeking Alpha. There are at least as many detractors as there are supporters.

I have been a supporter for longer than I care to admit, but I'm convinced that under new leadership, they are finally going in the right direction - up.

I recently have written articles on IBM explaining my position "IBM: There's A New Sheriff In Town" and "IBM: Even Veteran Players Turn Around Eventually".

Recent news at IBM includes the spin-off of the Managed Infrastructure Services unit of its Global Technology Services operation into a new public company (closing late 2021) and the most recent earnings report for the third quarter 2020.

Here are four items to consider when looking at IBM's spin-off.

1. How have other tech spin-offs performed?

This is not the first spin off from what I call an old-tech company. There have been many others before. Here are three that may be indicative of what IBM shareholders can expect.

In 2015, HP Inc. (HPQ) spun-off of HP Enterprises (HPE) in this case separating the hardware business from the service business not unlike what IBM is attempting. In this case, the spin-off did a little better at the one-year mark but not a whole lot of difference. In fact, you would have to get to the pandemic to see any meaningful difference.

Then interestingly enough, HPE spun-off DXC Technology (DXC) in 2017. After about one year they were neck and neck but after that began to separate with DXC dropping more than HPE.

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