International Business Machines Corp (IBM) jumped the most since March last year in New York trading after setting new profit and revenue goals, adding more than US$7 billion to the company’s market value.
Operating earnings will increase to at least US$20 a share by 2015 from US$11.35 or more this year, helped by cost savings and software demand, chief executive officer Sam Palmisano said in a meeting with investors in New York on Wednesday. IBM also projected sales growth that exceeded analysts’ estimates and said it would spend US$20 billion on acquisitions in the next five years.
Palmisano is signaling his pace of acquisitions may be accelerating. He spent more than US$20 billion on 100 purchases in the eight years since taking over in 2002, focusing on the higher-margin businesses of services and software. He has also bought back shares and cut jobs to make up for slowing corporate spending amid the recession.
The world’s largest computer-services provider’s projections for 2015 assume about 5 percent annual sales growth, chief financial officer Mark Loughridge said. The software segment, the company’s most profitable business, will make up almost half of total profit in five years.
IBM will keep investing in markets that help customers be more efficient, such as software that helps analyze or predict trends and cloud computing, which lets them store and access information on shared servers, Palmisano said.
The company is also developing services to monitor highways, electrical grids and other infrastructure so they can be run more efficiently.
Increased sales of those technologies, along with its growth markets, such as Brazil and China, will contribute US$20 billion to sales growth by 2015, the company said.
IBM, based in Armonk, New York, climbed US$5.79, or 4.6 percent, to US$132.68 at 4pm on Wednesday in New York Stock Exchange composite trading. The shares have added 1.4 percent this year.
The goals show IBM can increase sales by single digits and earnings by more than 10 percent through the next five years, Moshe Katri, an analyst at Cowen & Co, said in a note to clients on Wednesday. He maintained his “outperform” rating on the stock, saying it should outperform the market by 20 percent in the next six months to a year.
The amount set aside for acquisitions will equal about US$4 billion a year, Loughridge said at the meeting.
Analysts predicted revenue growth of 4.3 percent this year, to US$99.9 billion, according to the average of estimates compiled by Bloomberg, after falling 7.6 percent last year. Analysts also forecast sales growth of about 4 percent for next year and 2012.
IBM won’t make acquisitions just to boost sales, Loughridge said. The company wants a return for its investment, he said.
IBM plans to save US$8 billion through productivity gains by 2015, while free cash flow should reach US$100 billion over that span. The company said it plans to give 70 percent of the cash flow to shareholders.
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