Contrasting IBM (IBM) and Arista Networks (ANET)

IBM (NYSE: IBM) and Arista Networks (NYSE:ANET) are both large-cap computer and technology companies, but which is the superior investment? We will compare the two companies based on the strength of their dividends, profitability, analyst recommendations, institutional ownership, earnings, risk and valuation.

Earnings and Valuation

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This table compares IBM and Arista Networks’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
IBM $79.14 billion 1.84 $5.75 billion $13.80 11.44
Arista Networks $1.65 billion 10.78 $423.20 million $4.65 51.63

IBM has higher revenue and earnings than Arista Networks. IBM is trading at a lower price-to-earnings ratio than Arista Networks, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

IBM has a beta of 0.9, suggesting that its stock price is 10% less volatile than the S&P 500. Comparatively, Arista Networks has a beta of 1.5, suggesting that its stock price is 50% more volatile than the S&P 500.

Dividends

IBM pays an annual dividend of $6.00 per share and has a dividend yield of 3.8%. Arista Networks does not pay a dividend. IBM pays out 43.5% of its earnings in the form of a dividend. IBM has increased its dividend for 18 consecutive years.

Insider & Institutional Ownership

57.0% of IBM shares are owned by institutional investors. Comparatively, 56.5% of Arista Networks shares are owned by institutional investors. 0.2% of IBM shares are owned by company insiders. Comparatively, 28.1% of Arista Networks shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares IBM and Arista Networks’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
IBM 7.27% 69.48% 10.67%
Arista Networks 25.71% 25.86% 16.84%

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for IBM and Arista Networks, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
IBM 5 15 9 0 2.14
Arista Networks 1 14 18 0 2.52

IBM currently has a consensus target price of $165.69, suggesting a potential upside of 4.94%. Arista Networks has a consensus target price of $247.38, suggesting a potential upside of 3.03%. Given IBM’s higher possible upside, analysts clearly believe IBM is more favorable than Arista Networks.

Summary

Arista Networks beats IBM on 9 of the 17 factors compared between the two stocks.

About IBM

International Business Machines Corporation operates as an integrated technology and services company worldwide. Its Cognitive Solutions segment offers Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. This segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and finance, procurement, talent and engagement, and industry-specific business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system. Its Global Financing segment provides lease, installment payment plans, and loan financing services; short-term working capital financing to suppliers, distributors, and resellers; and remanufacturing and remarketing services. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. International Business Machines Corporation was founded in 1911 and is headquartered in Armonk, New York.

About Arista Networks

Arista Networks, Inc. provides cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company's cloud networking solutions consist of its extensible operating systems, a set of network applications, as well as gigabit Ethernet switching and routing platforms, including universal leaf, spline, and universal spine products. It also provides post contract customer support services, such as technical support, hardware repair and parts replacement beyond standard warranty, bug fix, patch, and upgrade services. The company serves a range of industries comprising Internet companies, service providers, financial services organizations, government agencies, media and entertainment companies, and others. It markets and sells its products through distributors, value-added resellers, system integrators, and original equipment manufacturer partners, as well as through its direct sales force. The company was formerly known as Arastra, Inc. and changed its name to Arista Networks, Inc. in October 2008. Arista Networks, Inc. was founded in 2004 and is headquartered in Santa Clara, California.

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