On Tuesday, Evercore ISI maintained its Outperform rating on IBM (NYSE:IBM) stock with a steady price target of $215.00. The firm is optimistic about IBM's upcoming quarterly results, slated to be released next Wednesday, July 24, after the market closes.
The anticipation is built on the grounds of improving fundamentals, particularly from Red Hat (RHT) and the consulting segment, despite IBM's stock showing a relatively flat performance compared to the general market's 11% gain since the last earnings report on April 24.
The firm projects that IBM will likely report moderate outperformance against the market consensus, with revenue and EPS estimates of $15.6 billion and $2.18, respectively.
Factors such as Red Hat's acceleration, improved consulting fundamentals, and the beginning of AI momentum are expected to contribute to better-than-anticipated results and a positive trend for the remainder of the calendar year 2024.
Evercore ISI foresees that IBM will maintain its full-year guidance, with expectations of mid-single-digit revenue growth and a free cash flow (FCF) of $12 billion. Investors are advised to watch for several key aspects in the upcoming earnings call, including AI revenue contributions, the trajectory of Red Hat's business, the potential reacceleration of IBM's consulting growth, progress towards the FCF outlook, and the implications of the QRadar sale to Palo Alto Networks (NASDAQ:PANW) on software revenue and consulting benefits.
The firm concludes that IBM is positioned to sustain mid-single-digit sales growth, driven by secular growth in consulting, enhanced execution, and benefits from software side price increases.
Additionally, the firm projects that the benefits from AI will become significantly material in calendar year 2025 and beyond. The Outperform rating and the $215 price target reflect confidence in IBM's strategic positioning and future performance.
In other recent news, several investment firms have focused on IBM's financial performance and strategic initiatives. BofA Securities recently maintained a Buy rating on IBM, emphasizing the company's ongoing transformation efforts, including revenue growth and free cash flow improvements. The firm also highlighted IBM's significant opportunity in General AI, with a backlog worth $1 billion.
Simultaneously, Goldman Sachs (NYSE:GS) initiated coverage on IBM with a Buy rating, underscoring the company's strategic shift towards long-term growth and focus on infrastructure software assets, particularly those related to open-source and artificial intelligence. The firm expressed confidence in IBM's potential for growth, indicating a positive outlook for the company's future.
Furthermore, BMO Capital Markets and RBC Capital Markets maintained their respective ratings on IBM. Both firms emphasized IBM's strategic focus on AI and hybrid cloud services, and its decision to sell its QRadar product to Palo Alto Networks.
In terms of financials, IBM's revenue and EPS are projected to grow steadily, with revenue estimated to increase from $60,532 million in 2024 to $65,517 million in 2025, and EPS from $9.13 in 2024 to $10.34 in 2025. These projections are based on analysts' expectations and reflect IBM's potential for steady financial growth.
These recent developments and analyses from investment firms highlight IBM's strategic steps toward strengthening its position in the AI market and its overall business trajectory. As always, investors are advised to consider these developments in the context of their individual investment strategies.
InvestingPro Insights
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