On Wednesday, Bernstein SocGen Group maintained its Market Perform rating on IBM (NYSE:IBM) with a steady price target of $185.00. The firm anticipates a slight revenue increase for the second quarter, despite the non-completion of the Software AG asset acquisition, which was expected within the quarter.
The positive factors include a slight currency tailwind, reasonable consensus expectations, and a potential boost in consulting demand. The earnings per share (EPS) forecast aligns with the consensus, and IBM is expected to reiterate its full-year 2024 revenue and free cash flow (FCF) guidance.
IBM's consulting segment remains a focal point after a disappointing first quarter. However, the industry has shown some positive signals; Accenture (NYSE:ACN) reported strong bookings, and HCL Technologies observed better backlog realization. IBM is also poised to benefit from nearly $1 billion in AI consulting signings. Questions linger over the Business Process Outsourcing (BPO) sector, which accounts for 5-6% of IBM's revenue.
Strategic acquisitions are set to contribute approximately 100-150 basis points to IBM's revenue growth in 2024, aligning with company projections.
While the Apptio acquisition's impact is expected to diminish in the third quarter, contributions from StreamSets/webMethods will commence, and the HashiCorp (NASDAQ:HCP) acquisition is anticipated to close in the fourth quarter, pending regulatory approval.
The sale of IBM's Qradar SaaS assets to Palo Alto Networks (NASDAQ:PANW) is likely to result in a one-time increase in EPS and FCF, which could occur in the third quarter.
Additional factors to watch include progress on AI initiatives, the state of corporate IT spending, the performance of transaction processing and software sectors, Red Hat's billing and growth, and updates on IBM's cost-cutting measures, including the net savings and their timing.
In other recent news, IBM is set to release its quarterly results, with Evercore ISI maintaining an 'Outperform' rating on the company, citing an optimistic outlook for the quarter. The firm projects IBM to report revenue and EPS estimates of $15.6 billion and $2.18, respectively, with an anticipated contribution from Red Hat and the consulting segment.
Moreover, BofA Securities has maintained a 'Buy' rating on IBM, underscoring the company's significant opportunity in General AI and the potential benefits for its consulting and software segments.
Goldman Sachs (NYSE:GS) has also initiated coverage on IBM with a 'Buy' rating, highlighting the company's strategic shift towards long-term growth and focus on infrastructure software assets, particularly those related to open-source and artificial intelligence.
Notably, 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, according to analysts' expectations.
These recent developments reflect IBM's strategic focus on AI and hybrid cloud services, potential for Red Hat to reaccelerate its performance, and the company's decision to sell its QRadar product to Palo Alto Networks.
Furthermore, IBM's commitment to releasing its family of Granite models into open source has been positively received by BofA Securities, which maintains a 'Buy' rating on IBM, reflecting the company's strategic steps towards strengthening its position in the AI market.
InvestingPro Insights
As IBM navigates through strategic acquisitions and a changing IT landscape, the company's financial health remains a critical factor for investors. According to recent InvestingPro data, IBM's market capitalization stands at a robust $170.69 billion, with a Price/Earnings (P/E) ratio of 20.2 for the last twelve months as of Q1 2024. This valuation is complemented by a Price/Book ratio of 7.34, suggesting a premium market perception of the company's assets. Additionally, IBM's revenue growth over the last twelve months was 2.45%, a steady increase that aligns with Bernstein SocGen Group's expectations for slight revenue growth.
InvestingPro Tips highlight IBM's strong dividend history, having raised its dividend for 28 consecutive years and maintained payments for 54 years, which may appeal to income-focused investors. Moreover, the company's stock is currently considered to be in overbought territory according to the Relative Strength Index (RSI), and it typically trades with low price volatility, indicating a potential preference for stability among investors.
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