IBM's stock is getting pounded as the company struggles to transform itself

IBM's stock is down more than 5% Tuesday, as investors digest the company's disappointing third quarter results.

IBM reported a beat on its non-GAAP earnings per share profits but missed on revenues.

But that's not really the problem. The real issue is that IBM also lowered full-year EPS guidance, indicating that its fourth and most important quarter isn't going to knock it out of the park. The fourth quarter is traditionally strongest as salespeople push to close deals to make their annual quotas.

IBM now expects full-year 2015 operating (non-GAAP) EPS of $14.75 to $15.75, down from its prior goal of $15.75-$16.50. Consensus was at $15.68.

IBM is like a ship with a hole in its bow. It is trying to bail out the water of its declining hardware, software and consulting businesses, divesting the least profitable, while it frantically tries to build a new boat made of hot new high-growth, higher margin businesses in areas like cloud computing, big data/analytics and mobile computing.

It's not building that new boat fast enough. It calls these new businesses its "strategic imperatives" and while those are growing, up 17 percent (up 27 when adjusted for foreign exchange headwinds), they aren't growing fast enough to replace the declines in nearly all of its other major businesses.

Wall Street analysts remain wary.

Deutsche Bank rates the stock a hold, but lowered the target price to $150 from $160. (The stock is trading on Tuesday around $141). Analyst Sherri Scribner writes, "We continue to see IBM as challenged by secular changes ... declined in CC. While we expect these challenges to continue, we believe current valuation already largely reflects this negative view."

Morgan Stanley, rates the stock equal weight, and lowered the target price to to $143 from $157. The "cloud hurts more than it helps," writes analyst Katy Huberty, who said she see's "more signs of cloud cannibalization" in this last quarter and in quarters to come.

Credit Suisse rates the stock "underperform" and adjusted its target price all the way down to $125. "Our concern is that there remain continued declines in revenue and EPS to come," writes analyst Kulbinder Garcha who doesn't think IBM will hit its new, lower year-end EPS targets. " We adjust our EPS estimates for FY15/16 to $14.91/$14.03, and see a painful multi-year turnaround ahead."

Analysts were pleased to see IBM's progress in its strategic initiatives, an area where IBM is investing billions of dollars spinning up new business units, opening new data centers and acquiring revenue, tech and talent. However, IBM CEO Ginni Rometty still needs to sell Wall Strett on her bigger vision, for IBM to usher in the era of "cognitive computing" with talking computers so smart, they inform our every decision.

IBM will likely achieve that vision. It's just that she's already got a lot of competition. For instance, Microsoft, Google, Amazon are all working on smarter "machine learning" computers that can talk, reason and learn.