IBM plans to exchange its stake in Kyndryl for IBM debt over the following 12-month period. After a year, IBM won’t hold any financial interest in Kyndryl if all goes according to plan. For IBM shareholders, no action is required to receive shares of Kyndryl.

• Kyndryl will have around 90,000 employees, so revenue per employee will be just over $200,000.
• I also believe it’s due to management being better incented with compensation including stock and options directly tied to the business.
• The plan has always been for IBM to distribute shares of Kyndryl to its shareholders in a tax-free transaction.
• The combined operation’s cash machine is staying under the Big Blue banner, leaving little room for shareholder-friendly dividend policies at Kyndryl.
• But the real opportunity lies in improving earnings through cost-cutting and renegotiating existing contracts.
• We anticipate that revenue will return to single-digit growth in a couple of years, but it is still unclear how things will play out and how management will execute.

The stock is priced at around 0.42x EV/Sales, 2.5x EV/EBITDA, and approximately 11x EV/FCF (all forward measures). For a tech company with growing profits, it is definitely very attractive. For comparison, the sector’s average EV/SALES is 2.73x and EV/EBITDA 14.5x. Lastly, they ended the quarter in a solid financial position. The company holds $1.5 billion in cash and equivalents in its balance sheet and only has $3.3 billion of total debt.

Expedient Announces Partnership with Kyndryl to Deliver Disaster Recovery as a Service

Reduced capital needs – Kyndryl has a very high capital intensive business. However, as it moves to offer more services from the cloud, that will be reduced. The Motley Fool has no position in any of the stocks mentioned. Details have been scarce https://forexbroker-listing.com/ on the spinoff since it was announced in late 2020. On Tuesday, Kyndryl filed its Form 10 registration statement with the SEC that filled in some of the blanks. Mergers and acquisitions – Kyndryl has the balance sheet to pursue acquisitions.

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. You might wonder what, exactly, a managed infrastructure business is. Kyndryl’s assets and operations used to be known as the managed infrastructure services part of IBM’s global technology services segment.

NYSE: IBM

Paramount Global shares PARA, +2.94% rose 4% as the media company’s adjusted earnings beat expectations and as it agreed to sell Simon & Schuster for $1.6 billion to KKR. To sum up, we believe the changes that Kyndryl is undergoing are going to positively affect their financial results, and the market is not pricing it yet. At current prices, we think it represents an attractive risk-reward opportunity. It includes everything from G&A optimization to growing business lines such as Kyndryl Consult. Consult encompasses a wide range of advisory and implementation services offered across all six of their practices.

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They already have a highly skilled workforce that can easily move into adjacent businesses. IBM’s three purest play competitors are shown in the chart below. While Kyndryl is the worst of the worst (worst part of a bad company) from many stock investors perspective, that is not the case in the IT world. Its professionals are highly trained and highly regarded by their customers. In fact, Kyndryl is still the blue chip in its industry.

Moodys assigned an investment grade rating of Baa2. This will allow flexibility for growth through acquisitions, dividends, and business investment. Free of poor management – The decade under Ginny Rometty was a disaster. https://forex-reviews.org/ In January, 2020 she was replaced as CEO by Arvind Krishna, the head of IBM’s cloud division. While this sounds good, and copies what Microsoft did, a closer look indicates the new CEO is also problematic.

However, IBM’s market cap shrank from $127.3 billion to $115.1 billion that day — a $12.2 billion reduction. As a result, $3.1 billion of shareholder value simply disappeared as investors pondered https://broker-review.org/ how this experiment might turn out in the long run. IBM’s growth rates might seem slow, but they’re a vast improvement from its declining revenue and profits throughout most of the past decade.

S&P 500 comes within a single point of its 2023 intraday high

The company has already seen more than $300 million of annualized benefits, and they are on track of exceeding their $400 million fiscal 2024 year-end goal. Moreover, the margins negotiated on the new contracts keep surpassing their own expectations quarter after quarter. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund owns shares of IBM and Kyndryl Holdings, Inc. The Motley Fool owns shares of and recommends Microsoft.

This represented 4.8% of the market cap of IBM at the time of the spinoff, for a business with 20% of the combined revenues. IBM retained 19.9% of Kyndryl stock in the transaction but intends to dispose of that stock over the next year. Kyndryl joined the S&P Midcap 400 on November 5 th and there are about 224 million shares outstanding. It has about 90,000 employees, many of them highly skilled. It prov ides 2 million terabytes of storage and manages 750,000 virtual servers and 270,000 network devices.

This business plan involves developing and maintaining the software that runs behind the scenes of any modern business, along with a plethora of support services for those crucial software assets. Kyndryl provides a wide variety of valuable IT management expertise, from network design and cloud computing to data security and IT planning. After the separation, IBM will focus on its core hybrid cloud and artificial intelligence (AI) solutions business.

Kyndryl, with its spinoff has an opportunity to go after many customers and businesses it couldn’t pursue before. This includes its own cloud and consulting services formerly handled elsewhere at IBM. Since Kyndryl was just spunoff, there is a lot of noise in the numbers.