Still, the 21% one-year gains may have helped mitigate their overall losses. They should, however, be mindful of further losses in the future. Rivals Atos and DXC – the latter a merger of CSC and HPE Enterprise Services – have similarly found that making a living from infrastructure services is harder than it used to be. The shares are trading under the KD symbol, and by the close of market today, the stock was valued at $26.38 apiece, down 6.7 per cent from its opening, and slipped further after-hours. It was otherwise a pretty unremarkable trading day, overall. Most of IBM’s investors likely looked at those numbers, remembered why Big Blue was so eager to divest the struggling business, and immediately sold their new shares of Kyndryl.

This is a company that should garner interest from ESG funds and investors. Management plans – Management has been somewhat vague to this point on goals for profit margins, cost cuts, and growth initiatives. I expect a detailed presentation within the next 6 months covering all of that. The guidance as to what can be done should help the stock. Big increase in TAM – This is probably the most important catalyst.

Kyndryl Unveils Advanced Application Modernization Services for Cloud Container Platforms

To see all exchange delays and terms of use please see Barchart’s disclaimer. Kyndryl’s stock was trading at $11.12 at the beginning of the year. Since then, KD stock has increased by 50.1% and is now trading at $16.69. MarketBeat just released its list of 10 cheap stocks that have been overlooked by the market and may be seriously undervalued.

If you back out the relevant items, Kyndryl produced positive free cash flow of roughly $0.7 billion. Measuring the profitability of a business that’s still part of a larger parent company can be difficult. On an unadjusted basis, Kyndryl produced a pre-tax loss of $1.8 billion and a free cash flow loss of $0.3 billion in 2020. A study of spinoffs by factorinvest.com is shown in the following chart. It clearly shows outperformance to the parent and the stock market.

Markets

That was 1.3% of the $4.6 billion in revenues that quarter. In the first 9 months of 2021, revenues totaled $14.1 billion, down 2.2% from the prior year. Management believes the increased revenue decline in the third quarter was due to customer hesitancy for new projects with the business for sale prior to the spinoff announcement. Kyndryl had adjusted free cash flow of $317 million in the first 9 months of 2021. Kyndryl Holdings, Inc. operates as a technology services company, which engages in the provision of infrastructure services. It designs, builds, manages, and modernizes the mission-critical technology systems that the world depends on every day.

The distribution is expected on November 3, 2021, to shareholders of record on October 25, 2021. After the share distribution, Kyndryl Holdings, Inc. will become an independent publicly traded company with the ticker symbol KD. Kyndryl and its peers have revenues declining at low to mid single digits a year right now. The reason is a migration of IT data centers to the cloud. 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.

On November 3, 2021 IBM distributed 1 Kyndryl share for every 5 of IBM. 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 https://bigbostrade.com/ 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.

Kyndryl

Nearly 80.1 per cent of Kyndryl shares were distributed to the shareholders of IBM, who received one Kyndryl share for every five IBM shares owned. So I think it would be unwise to sell my Kyndryl shares at these unreasonably low prices, and bargain hunters might even want to pick up some Kyndryl stock, expecting an upward price correction relatively soon. All things considered, Kyndryl doesn’t have much to offer investors right now. This operation was IBM’s least exciting asset in terms of long-term growth potential. The big dividend payouts will continue to flow through the IBM stock, not Kyndryl.

• Kyndryl is led by Martin Schroeter, who previously spent more than a decade at IBM.
• Among 1,618 stocks on U.S. exchanges with a market cap of at least $4 billion (Kyndryl stands at $4.2 billion), only 12 carry lower price-to-sales ratios than this ticker.
• That divergence wasn’t surprising, since IBM framed the spin-off as a way to jettison its weakest businesses to invest in more promising markets.
• Among other things, Kyndryl’s financials include allocations for marketing and global sales coverage design that aren’t consistent with how the company will look once the spinoff is complete.
• The combined operation’s cash machine is staying under the Big Blue banner, leaving little room for shareholder-friendly dividend policies at Kyndryl.

The absolute value might be more important than the proportional share. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying. I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Kyndryl Becomes a VMware Cross-Cloud Managed Services Provider

But we can’t rely on that fact alone since institutions make bad investments sometimes, just like everyone does. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Kyndryl Holdings, (below). Of course, keep in mind that there are other factors to consider, too. Kyndryl is still the largest player in the managed infrastructure and implementation services space, and it generates roughly twice as much revenue as its top competitor, DXC Technology (DXC -0.05%). Without IBM holding it back, Kyndryl could leverage that market-leading position to aggressively expand and start growing its revenue again.

IBM Could Be One of the Big Turnaround Stories of 2022

My one year price target is $35, which is 0.42x revenues. That is still below the peer average of 0.50x for price to revenues. Cognizant (CTSH), which trades for a PE ratio of 20 and a price to sales of 2.32x, is a good example of what Kyndryl can be if it is able que es split to take of advantage of the new markets now available to it. In the meantime, Kyndryl is significantly undervalued based on the business and balance sheet its got. IBM holders selling pressure soon gone – Many long term IBM holders are selling for various reasons.

Stock Money Flow

Growth areas – The IT business is rapidly evolving leading to new opportunities. They expect to get growth from areas such as security and resiliency, AI, data and analytics, a hybrid cloud, and intelligent automation. They are now free to recommend non-IBM equipment and services. Kyndryl can expand its consulting and cloud services formerly handled by other parts of IBM. Since Kyndryl was just spunoff, there is a lot of noise in the numbers.

It actually started trading at $40 prior to that on a when issued basis in late October. Tangible net worth was $4.2 billion on September 30, 2021. Total liabilities (I always exclude lease liabilities) were 1.28x tangible net worth on that date. There was only $392 million of interest bearing debt on September 30, 2021. At the time of the spinoff, $3.2 billion in debt was issued in bonds and $2.0 billion in cash was retained on the books. The net debt of $1.2 billion is only 29% of tangible net worth.

IBM has long been a big dividend investors stock and Kyndryl currently does not pay one. Kyndryl’s market cap is 4% of IBM’s, making it too small for large cap funds and investors. Kyndryl also has the stigma of being the junk IBM needed to jettison to grow again. All this and tax loss selling should be over soon, removing major headwinds for the stock.

Comparing Kyndryl to its peers, it is superior to Unisys with its poor balance sheet and more similar to the other two. It also has significantly superior prospects now that it can go after significant new business it couldn’t offer before. It also has a good balance sheet, and the majority of the largest companies as existing customers to cross sell to. This is partially offset by its current weak profit margin versus peers. However, profits are better than they look as they are understated by depreciation significantly exceeding capital expenses.