Convergys Corporation (CVG) & International Business Machines Corporation (IBM) Critical Contrast

International Business Machines Corporation (NYSE: IBM) and Convergys Corporation (NYSE:CVG) are both mid-cap computer and technology companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, risk, valuation, dividends, earnings, profitabiliy and institutional ownership.

Profitability

This table compares International Business Machines Corporation and Convergys Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
International Business Machines Corporation 14.58% 71.53% 11.02%
Convergys Corporation 4.67% 14.24% 7.94%

Volatility and Risk

International Business Machines Corporation has a beta of 0.98, suggesting that its share price is 2% less volatile than the S&P 500. Comparatively, Convergys Corporation has a beta of 1.04, suggesting that its share price is 4% more volatile than the S&P 500.

Institutional & Insider Ownership

58.2% of International Business Machines Corporation shares are owned by institutional investors. Comparatively, 99.7% of Convergys Corporation shares are owned by institutional investors. 0.2% of International Business Machines Corporation shares are owned by insiders. Comparatively, 1.7% of Convergys Corporation shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Dividends

International Business Machines Corporation pays an annual dividend of $6.00 per share and has a dividend yield of 4.2%. Convergys Corporation pays an annual dividend of $0.40 per share and has a dividend yield of 1.7%. International Business Machines Corporation pays out 49.9% of its earnings in the form of a dividend. Convergys Corporation pays out 30.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. International Business Machines Corporation has raised its dividend for 17 consecutive years and Convergys Corporation has raised its dividend for 4 consecutive years. International Business Machines Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for International Business Machines Corporation and Convergys Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
International Business Machines Corporation 6 13 7 0 2.04
Convergys Corporation 0 2 1 0 2.33

International Business Machines Corporation presently has a consensus price target of $157.75, suggesting a potential upside of 9.33%. Convergys Corporation has a consensus price target of $30.00, suggesting a potential upside of 25.79%. Given Convergys Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe Convergys Corporation is more favorable than International Business Machines Corporation.

Earnings and Valuation

This table compares International Business Machines Corporation and Convergys Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
International Business Machines Corporation $78.44 billion 1.72 $18.00 billion $12.03 11.99
Convergys Corporation $2.92 billion 0.77 $366.90 million $1.33 17.93

International Business Machines Corporation has higher revenue and earnings than Convergys Corporation. International Business Machines Corporation is trading at a lower price-to-earnings ratio than Convergys Corporation, indicating that it is currently the more affordable of the two stocks.

Summary

International Business Machines Corporation beats Convergys Corporation on 10 of the 17 factors compared between the two stocks.

About International Business Machines Corporation

International Business Machines Corporation (IBM) is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing. The Cognitive Solutions segment delivers a spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, a cognitive computing platform that has the ability to interact in natural language, process big data, and learn from interactions with people and computers. The GBS segment provides clients with consulting, application management services and global process services. The Technology Services & Cloud Platforms segment provides information technology infrastructure services. The Systems segment provides clients with infrastructure technologies. The Global Financing segment includes client financing, commercial financing, and remanufacturing and remarketing.

About Convergys Corporation

Convergys Corporation is engaged in customer experience outsourcing. The Company’s geographical segments include North America and Rest of World. The Company offers services across industries, including communications and media, technology, financial services, retail, government and healthcare. The Company helps businesses to create customer experiences across multiple interaction channels, such as voice, chat, e-mail and interactive voice response. The Company provides solutions across the customer lifecycle, including sales, customer service, technical support, customer retention and collections. Its omni-channel contact center technology solutions include multichannel interaction solutions, cross-channel integration framework and robotic process automation. It offers analytics and consulting, and software solutions, including integrated customer experience analytics, post-contact surveys, relational loyalty research, and customer segmentation and profiling.

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