Out Fox The $treet

Along with reporting Q4 results, IBM (IBM) reported the next step in returning to growth. The stock never belonged below $120.

IBM agreed to pay a 63% premium for Red Hat to become a leader in hybrid cloud. The deal is accretive to free cash flows starting around 2020. The $34 billion of additional net debt adds risk to the story. The transformative deal could be the bold move to change the perception of the stock trading at only 8.5x '19 earnings estimates. The market has long complained that   IBM   ( IBM ) hasn't made a bold move to transform the company. The move to acquire   Red Hat   ( RHT ) was the move that the market always wanted, but no doubt views as highly risky now. The deal premium adds more risk than justified but IBM might just pull the company out of this tailspin with this bold move. Read the full article on Seeking Alpha.  Disclosure: Long IBM. Please review the disclaimer page for more details.   

After the close on Monday, Red Hat (RHT) announced Q2 earnings that met analyst estimates (assuming the removal of acquisition costs). The concerning part remains that earnings were flat year-over-year. Sure, the company is ramping up marketing and research expenses, but most stocks have a difficult time remaining at 40x multiples during those transitions. The interesting part though is that the stock was only down 3% as of writing this article. After a decent rally this year, a normal stock would get hit harder off these weak numbers. The company is a leading provider of open source software solutions, taking a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details.