Shares of Kyndryl Holdings(NYSE: KD) soared on Wednesday morning thanks to a robust earnings report. The stock was up by 13.9% at 10:30 p.m. ET, slightly below a 10:00 a.m. peak at 15.7%.
Why Kyndryl's stock just jumped
The company, formerly known as IBM's (NYSE: IBM) infrastructure services division, was expected to post an adjusted net loss of $0.63 on sales near $3.98 billion in the second quarter of fiscal year 2024. Instead, Kyndryl reported a net loss of $0.62 per share and $4.07 billion in top-line revenue. The company raised its full-year guidance for adjusted pre-tax income and earnings before interest, taxes, depreciation, and amortization (EBITDA).
Kyndryl's "three-A" plan for future profit growth
Kyndryl's management credited the company's "three-A initiatives" for this quarter's solid performance.
- Alliances with hyperscale cloud computing companies resulted in $180 million of third-quarter sales, just below the $190 million this initiative produced in the year-ago quarter.
- Advanced delivery updates have redeployed 7,500 of Kyndryl's delivery staffers to more effectively serve an ever-changing market. That's more than double the 3,000 redeployments reported as of the second quarter of fiscal 2023, and the annualized cost savings of this initiative is up from $200 million to $550 million.
- Accounts with weak profit margins are getting special attention. Kyndryl rarely drops unprofitable contracts. Instead, more automation and deeper consulting relationships widen the thin margins. This effort has unlocked an annualized cost-savings target of $500 million in fiscal year 2024, up from a $200 million rate four quarters ago.
With Wednesday's price surge in its pocket, Kyndryl's stock is down by 39% since the separation from IBM on November 3, 2021. IBM's shares gained 22% over the same period, leaving the S&P 500(SNPINDEX: ^GSPC) index's 6% drop comfortably behind.
So, the original Big Blue stock has been the better investment so far, but Kyndryl's independent improvement efforts are starting to pay off. The stock has nearly doubled in 52 weeks, and it still looks affordable at 0.2 times trailing sales. If you're looking for a rock-solid value investment with tendrils in the long-term growth opportunities of cloud computing and artificial intelligence (AI), Kyndryl could be a sensible pick.
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Anders Bylund has positions in International Business Machines. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
