IBM optimistic on outlook for shares

Even with revenue chugging along only moderately, IBM Corp expects to find enough cost cuts, acquisitions and stock-buyback opportunities that annual earnings per share could nearly double by 2010, the company's finance chief told analysts on Thursday.

Addressing a daylong briefing at IBM's research labs in Yorktown Heights, New York, chief financial officer Mark Loughridge laid out what he called a "road map" for earnings per share to rise from US$6.11 last year to as much as US$11 in 2010.

Although Loughridge acknowledged that many factors could affect the accuracy of the estimate, even the ballpark forecast was striking because the technology company generally is conservative about its guidance to Wall Street.

"I think the road map ... gives us a lot of confidence in our business model," he said.

Of the roughly US$5 increase in earnings per share that IBM says is possible by 2010, US$0.75 comes from the assumption that IBM's recent growth rates will continue. IBM sees another US$1 coming from wide-ranging efforts already underway to cut costs and boost profit margins; US$1.10 from more than US$40 billion worth of stock buybacks; US$1.20 from acquisitions and other future growth initiatives; and US$0.90 from retirement-related savings. IBM is freezing accruals in its pension plan after this year.

IBM already has been on a stock-buyback tear, spending US$27 billion on that purpose from 2003 through last year. Last month IBM's board authorized the company to spend US$16.4 billion more on repurchases and take on debt to achieve that.

That move and a recent rise in IBM's dividend have helped the company's shares hit five-year highs recently.

Even so, IBM still is scrambling to find meaningful growth and fend off lower-cost competition in its key tech-services business. One answer, chairman and chief executive Sam Palmisano contended earlier in Thursday's presentation, is that IBM is in a better position than rivals to take advantage of fast growth in India, China, Russia, Brazil and other developing countries.

Analyst Bob Djurdjevic of Annex Research said IBM's US$11-per-share goal seems "pretty realistic," given that the company expects to rely even more on its software division in coming years.

"That's where the big profit margins are," he said. But he'd rather see the company pour more money into future business prospects and less on buying its own stock so aggressively.