IBM soars after predicting revenue growth

After more than five years of declining sales, IBM says it will finally show investors it can grow again. Wall Street cheered, sending the shares up the most in more than eight years.

Some of that sales boost will come from one of the company’s legacy hardware businesses, rather than new services such as cloud and data analytics on which IBM has been pinning its prospects for growth.

Fourth-quarter revenue is projected to be $22 billion to $22.1 billion, which will represent as much as a 1.5 percent bump from the same period in 2016. It also tops analysts’ average estimate of $21.8 billion. In the last quarter of the year — historically IBM’s strongest — revenue will improve by as much as $2.9 billion sequentially, boosted in part by sales of its new mainframe server, Chief Financial Officer Martin Schroeter said Tuesday on a call to discuss earnings.

“The mainframe is going to drive a lot of the positive growth in the fourth quarter,” said Josh Olson, an analyst at Edward Jones & Co. “When you’re selling mainframes, you’re also selling a lot of software and services with that.” He rates the stock a hold.

If IBM achieves its outlook, it will end a 22-quarter streak of shrinking sales. In the third quarter, International Business Machines Corp. came closest to stemming that decline since the same period in 2016. Getting back to growth on the top line has been a major goal for Chief Executive Officer Ginny Rometty and a milestone investors are looking for as proof the company can finally climb out of its rut.

The shares rose as much as 8.2 percent to $158.62, the most since January 2009. They were trading at $158.15 at 9:37 a.m. Wednesday in New York and were the top gainer in the Dow Jones Industrial Average and Standard & Poor’s 500 Index.

But the mainframe business is cyclical, and analysts aren’t convinced IBM can sustain growth after server sales start tapering off. To prove it has reached the inflection point, IBM will need to show that its other categoriescan pick up the slack, Olson said. Analysts see positive signs in some of those areas, but are looking for continued growth before saying IBM’s turnaround is successful.