Jim Cramer salutes the CEO of an old-school tech stock that’s making a lot of people money
IBM has been a hot stock, and CNBC’s Jim Cramer said CEO Arvind Krishna is to thank for Big Blue finding its mojo once again. “This is the kind of thing that’s quietly happening, that people are making a lot of money in, and it doesn’t get mentioned other than the day of earnings,” Cramer said Monday on “Squawk on the Street.” He added, “I salute this man, Arvind Krishna.” When Krishna took over as CEO in April 2020, IBM was struggling to grow its sales and was generally seen as a legacy technology giant past its prime. Krishna has worked to shed that identify, and IBM’s stock performance suggests Wall Street has bought in. Shares of IBM have trounced the market since Krishna’s tenure began, advancing 264% on a total return basis between April 3, 2020, and Thursday’s close. The S & P 500 and Nasdaq Composite have climbed 173.5% and 191%, respectively, over the same stretch. In the past year alone, IBM is up 72% on a total return basis versus roughly 14% and 13% for the S & P 500 and Nasdaq, respectively. Total return includes dividends. Roughly 48% of analysts covering IBM have a buy-equivalent rating on the stock, according to FactSet, compared with 25% in April 2020. Cramer noted that as IBM’s growth prospects have improved, investors have rewarded shares with a higher price-to-earnings multiple. The stock ended 2019 trading around 10 times forward earnings. “It’s now up to 27 times earnings,” Cramer said, “and then Ben Reitzes at Melius comes out and reminds people that it can continue.” In a note to clients Monday, Reitzes, the head of technology research at Melius, raised his target price on IBM to $350 a share from $287. He also reiterated his buy rating and pointed to IBM’s infrastructure software business as the magic sauce to its transformation. Reitzes said that business could exit this year growing at a double-digit clip. “As IBM executes in Infrastructure Software – and others in [software-as-a-service] falter, we believe its multiple will continue to be rewarded more and more on a free cash flow basis,” Reitzes wrote in the note. Cramer marveled at IBM’s turnaround under Krishna. “He took a stock that hadn’t done anything for a very long time, and look at the wealth he’s created. He came in and said he’s going to embrace the cloud, and he did. He said he was going to make some acquisitions that would be very good, and he has. Congratulations to everyone involved,” Cramer said. Even prior to becoming IBM’s CEO at the height of the Covid-19 pandemic, Krishna led IBM’s research division and was one of the key players in the company’s $34 billion acquisition of Red Hat in 2019. Red Hat, which helped advance IBM’s cloud ambitions, is the business that’s most important for IBM’s long-term multiple, according to Melius analysts. Some of IBM’s more recent acquisitions across AI and cloud management include Hakkoda, HashiCorp, and DataStax. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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