tiprankstipranks
IBM: Decent Q2 Not Enough to Move These Analysts off the Sidelines
Stock Analysis & Ideas

IBM: Decent Q2 Not Enough to Move These Analysts off the Sidelines

International Business Machines (IBM) might have delivered its best sales growth for a decade in its latest quarterly report, but macro elements put a dent in what amounted to a solid showing.

For the second-quarter 2022, revenue rose by 9.3% year-over-year to reach $15.54 billion, in turn beating the Street’s call for $15.18 billion. There was a win on the bottom-line too, as adj. EPS of $2.31 edged out the $2.27 consensus estimate.

Software revenue rose by 6% year-over-year to $6.17 billion while the consulting division generated revenue of $4.81 billion, amounting to a 10% uptick compared to the same period a year ago.

IBM said the recent restructuring – the company spun off its managed infrastructure services business to Kyndryl in November – is going well, and noted demand remained robust despite the difficult operating environment. For the full-year, the company reiterated its expectation for constant currency revenue growth at the top end of its mid-single digit model.

However, marring proceedings, the company expects free cash flow (FCF) of $10 billion in 2022, right at the bottom of the $10 billion to $10.5 billion range it anticipated in April. The computing and software giant said the dollar’s resurgence and the halting of operations in Russia were behind the soft outlook.

Assessing the print, Evercore’s Amit Daryanani lauds the company’s performance but thinks prospects hinge on the FCF element.

“We think IBM is executing rather impressively specially given macro and f/x centric headwinds,” Daryanani said. “The focus will remain on IBM’s ability to show FCF & profit margin expansion specially if we end-up in a recession scenario.”

For now, the analyst sticks with an in-line (i.e., Neutral) rating and $140 target, suggesting shares will climb 10% higher over the coming months. (To watch Daryanani’s track record, click here)

BMO’s Keith Bachman notes that as FX influences FCF, he therefore does not consider the lower guide “disappointing.” However, the analyst doesn’t think the display does much to ultimately alter the picture.

“We thought IBM results were reasonable though we don’t think the results will cause any equivocating investors to declare a new position,” the analyst opined. “While FX is material for IBM, our coverage universe will face the same challenges.”

Bachman also remains on the sidelines with a Market Perform (Neutral) rating. His $148 price target makes room for one-year growth of 16%. (To watch Bachman’s track record, click here)

Bachman’s objective aligns almost perfectly with the Street’s average price target. Rating wise, the outlook is rather mixed; based on 5 Buys vs. 4 Holds and 1 Sell, the stock ekes out a Moderate Buy consensus rating. (See IBM stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles