I am neutral on International Business Machines Corporation (NYSE:), because – while its dividend yield and cash flow stability are attractive – the business’ weak growth prospects mean that its valuation is not particularly attractive at the moment.

International Business Machines Corporation (IBM) is a worldwide leader in software and hardware. Since 1911, International Business Machines Corporation has been offering business innovation via an open cloud platform.

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IBM The Strengths

IBM is a strong brand and has a wide range of core offerings including cloud computing and computer software. The company employs over 300,000 workers around the globe and generates a total revenue of more than $70 billion. Strategic acquisition and mergers with computing, technology, AI, and consulting companies have strengthened IBM’s position in the global competitive market, and it is regularly recognized as one of the best brands in the world.

IBM Latest Results

In its second quarterly 2021 report, IBM announced revenue of $18.75 billion, beating analysts’ expectations of $18.29 billion. IBM’s earnings per shares were $2.33, compared to an expected EPS at $2.29. The company’s revenue grew by 3% year-over-year in Q2 2021, the fastest growth in the past three years, and the company expects it to keep growing for the remainder of the year.

Its Cloud and Cognitive Software business, which includes IBM’s acquisition of Red Hat, contributed $6.10 billion in revenue, up 6% more than consensus estimates of $5.93 billion. Global Business Services, which contributed $4.3 billion to revenue, saw an almost 12% increase. System revenue reached $1.71billion, which was a decrease in 7%.

IBM’s second quarter in 2021 saw an unprecedented $1.75B in acquisitions spending. Its highest quarter-to-quarter ratio since the Red Hat deal of $34B in Q3 2019, when it spent $34B. The company stated it was acquiring myInvenio, a process-mining software company; Turbonomic, an application-management company; and Waeg, a Salesforce (NYSE:) consulting company.

IBM announced new AI features and a 2nanometer chip technology for Watson Studio.

IBM’s shares increased by 4 percent following better than expected results. Although the company didn’t provide any formal guidance, it stated that they expect increased revenue throughout the year. The company expects an adjusted cash flow of between $11 billion and $12 billion in fiscal 2021.

Calculating Valuation Metrics

IBM’s stock looks reasonably valued right now, as its EV/EBITDA ratio and Price to Normalized Earnings ratio both indicate the stock is trading close to its historical range. The EV/EBITDA rate is now 9.24x compared to the 5.-year average of 8.94x. The current Price to Normalized Earnings ratio stands at 12.40x as compared with its 5-year average 11.03x. TipRanks shows IBM stock charts.

Wall Street’s Take

Based on 6 Buy ratings and 6 Hold ratings over the last 3 months, IBM has a Moderate Buy consensus from Wall Street analysts. There have been 0 sell ratings. The upside potential of IBM is 10.46%, according to the $158.20 average IBM price target.

Summary and conclusions

IBM is a multinational information technology firm with strong financial security. But, it has had a difficult time growing and is now under scrutiny for its ability to compete with tech giants like Amazon (NASDAQ) and Oracle (NYSE).

That said, the price is not necessarily expensive – though it isn’t particularly cheap either – so I think investors might want to wait for a pullback before initiating a position.

Disclosure: Samuel Smith had no position in the securities listed in this article at the time it was published.

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