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The Ratings Game: IBM’s ‘turnaround has been successful enough,’ analyst says in ending bearish call

Yesterday, analysts at Morgan Stanley said their bull case for International Business Machines Corp.’s stock had played out.

Now, analysts at MoffettNathanson are ending their bearish call.

Combined, their new stances mirror the consensus view on IBM’s stock
Of the 18 analysts tracked by FactSet who cover the name, 12 have hold-equivalent ratings. Morgan Stanley’s Erik Woodring, who downgraded the stock to equal weight from overweight Wednesday, and MoffettNathanson’s Lisa Ellis, who raised her rating to market perform from underperform Thursday, both fall in that camp.

While Woodring reverted back to a stance that Morgan Stanley had on IBM about nine months back, Ellis reversed a more long-running position. She noted in her report that she had held an underperform rating on IBM’s stock since she began coverage of it in 2018.

“The Underperform call has worked—over the past five years, IBM’s stock has declined 10% on an absolute basis, while the S&P

is up 42%,” she wrote. “By comparison, Accenture

—the undisputed leader in Cloud and Digital among large-cap IT Services companies – is up 72% over the past five years.”

She’s not feeling outright bearish any longer, however, writing that IBM’s “turnaround has been successful enough that IBM is now able to keep its head above water, and can sustain organic revenue growth in the low-to-mid-single-digits.”

She was swayed by the company’s move to divest its Kyndryl business, which she called a large “anchor” on the portfolio, as well as the company’s commitment to a “a truly vendor-agnostic approach in IBM Consulting,” something she said has helped this part of the business drastically accelerate its growth.

Additionally, she noted that IBM’s acquisition of Red Hat has brought stability to the company’s base of traditional software.

See also: IBM just broke a winning streak that lasted nearly three decades

“We continue to see IBM’s Infrastructure Segment and the Transaction Processing Platforms sub-segment within Software (IBM’s businesses most directly tied to System Z, Power, and IBM’s other proprietary platforms) as remarkably resilient ‘cash cows’ for IBM, overall flat-to-slightly declining through cycle,” Ellis added.

IBM shares are up 0.6% in morning trading Thursday.

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