Earnings season really kicks into action this week, with several Wall Street heavyweights delivering 4Q21’s results. Once the bell rings on Monday’s session, International Business Machines (IBM) will report the quarter’s financials.
The results come hot on the heels of last Friday’s news. The company announced it is offloading the healthcare data and analytics assets belonging to its Watson Health portfolio; Francisco Partners will scoop the products for a yet undisclosed fee. These include substantial healthcare data sets, MarketScan, Health Insights, Micromedex, Clinical Development, Social Program Management, and imaging software offerings.
The sale is part of IBM’s efforts to turn more of its attention to the cloud and is anticipated to close in Q2.
As several media outlets had earlier already indicated a sale was on, Evercore’s Amit Daryanani does not think the news came as much of a shock to investors. Generally, the 5-star analyst is of the mind it is a clever move on the tech giant’s part.
“Overall, we think Watson Health hasn’t lived up to the heightened expectations investors had from this asset post a series of transactions that IBM had done to build up the portfolio (Truven, Phytel, Merge, etc); these acquisitions had cost ~$3.0-4.0B as IBM has focused on building out its healthcare portfolio,” the 5-star analyst opined. “While the financial implication from this is likely minimal, the strategic relevance of IBM consolidating their focus around the multi/hybrid cloud narrative and reducing the ‘noise’ in their portfolio would be a positive.”
As for what to expect in the December quarter print, Daryanani’s expectations are in-line with consensus estimates, which call for revenue of $16.1 billion and EPS of $3.30.
While no doubt investors will be keen to glean insights re the quarter’s display, Daryanani expects the focus will turn to IBM’s outlook for CY22. The company has already stated revenue growth for the year should align with the medium-term mid single-digit cc revenue growth outlook. This is before recognizing incremental revenue between $2.0-2.5 billion from sales to Kyndryl, the spin off which was completed last November.
All in all, Daryanani sticks with an In Line (i.e., Hold) rating, and $140 price target. There’s modest upside of 8% from current levels. (To watch Daryanani’s track record, click here)
Two other analysts join Daryanani on the sidelines, and with an additional 4 Buys and 1 Sell, the stock boasts a Moderate Buy consensus rating. The average target is more upbeat than the Evercore analyst’s; at $150.88, the figure represents one-year gains of ~18%. (See IBM stock forecast on TipRanks)
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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.
