Healthy Reasons to Buy IBM
Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Two announcements from IBM (NYSE: IBM) in the past few days are likely precursors to good news for its shareholders. The first announcement was that Big Blue is acquiring Vivisimo, a privately held provider of enterprise search and navigation software. The second announcement related to the State University of New York (SUNY) at Buffalo using an IBM Netezza appliance to create algorithms to accelerate multiple sclerosis research. Both announcements bolster IBM’s already major presence in the healthcare market, an important sector for IBM’s continued growth.
On the surface, the pending Vivisimo acquisition might not seem to have anything to do with healthcare. IBM’s press release about the deal listed Vivisimo’s major clients as Airbus, U.S. Air Force, Social Security Administration, Defense Intelligence Agency, U.S. Navy, Procter & Gamble, Bupa and LexisNexis. There are no healthcare companies specifically mentioned.
However, Vivisimo’s technology has been used by several healthcare organizations including Eli Lilly, National Institutes of Health, Norwegian Knowledge Centre for Health Services, Schering-Plough, the U.S. National Library of Medicine and Womenshealth.gov. Vivisimo’s Velocity platform enables users to quickly and easily access health information from disparate sources.
The SUNY announcement continues a string of successes for IBM in facilitating complex bioscience research. SUNY used IBM’s Netezza appliance to analyze genetic material in just a few minutes that previously would have taken several days. This research could ultimately make a huge difference for the hundreds of thousands of people with multiple sclerosis.
These two news items alone probably won’t impact IBM’s stock price much if any. What they underscore, though, is that IBM has a solid game plan for achieving dominance in the healthcare analytics arena and they are executing well on this plan. IBM bought Netezza in 2010 as part of this plan and is already seeing fruit from that purchase. Vivisimo is a small company with only 120 employees, but it is a great fit into IBM’s portfolio of data analysis products.
In addition to smart acquisitions, IBM launched a $100 million three-year initiative in mid-2010 to develop technologies and business processes for healthcare and insurance providers. Earlier this year, the company announced the formation of an advisory board to explore how the Watson supercomputer technology could be applied to healthcare. Watson is already being targeted to enable WellPoint Health Insurance to help medical professionals diagnose and evaluate treatment options for complex health issues. IBM certainly appears to have its act together on the healthcare front.
Vying For Position
IBM isn’t the only major technology company eyeing the big data healthcare market. Oracle (NASDAQ: ORCL) is seeking to leverage its current position in the provider and payer markets. Oracle counts over 350 healthcare providers as customers, including 70% of the top hospital chains. Over 80 payers use Oracle products currently as well. That group includes the top 20 U.S. health insurers.
Hewlett-Packard (NYSE: HPQ) is another company in the hunt. HP completed several strategic acquisitions in the last few years that make it competitive, including Vertica and Autonomy. However, HP suffered a loss recently in the departure of Chris Lynch, the former CEO of Vertica and head of HP’s Vertica division. It remains to be seen how that loss will impact HP's data analytics strategy.
Yet another competitor positioned to do well is EMC (NYSE: EMC). EMC will likely benefit more from management of big data storage via virtualization and the cloud than from pure analytics. However, it wouldn’t be a big surprise if EMC beefs up its capabilities on the analytics front through key acquisitions.
Investors probably can't go wrong by buying any of these competitors. Healthcare analytics with its big data linkage should continue to be a rising tide that lifts all boats over the long run. IBM probably deserves to be at the top of the list, though. The company has 8,000 employees in its Healthcare group with over 3,000 healthcare transformation initiatives under its belt. With a forward P/E of 12.55, the stock is still priced attractively even after an 11% run-up so far in 2012.
IBM’s strategy is to grow earnings per share to over $20 by 2015. That reflects an annual growth rate of around 16%. What is IBM’s current analytics business growth rate? Coincidentally, it’s 16%. And a significant portion of that analytics growth is in healthcare. With Big Blue’s solid fundamentals, strong execution and steadfast commitment to the healthcare market, there are some very healthy reasons to consider buying IBM.
Keith Speights (www.keithspeights.com) has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC, International Business Machines, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.