IBM Targets Rise After ‘Good, Clean Report,’ But Caution Remains

(Bloomberg) -- International Business Machines Corp. rose in premarket trading on Tuesday, after it reported second-quarter revenue that fell less than expected, with strength in the quarter coming from the company’s cloud business.

Analysts were mostly positive on what Citi said was “simply a good, clean report,” and multiple firms raised their price targets on the stock. However, Wall Street continues to have a tepid view on IBM’s prospects in the second half of the year. Bloomberg Intelligence wrote that positive trends in the quarter “won’t be sustainable.”

Shares rose 5.6% before the bell.

Here’s what analysts are saying about the results:

Morgan Stanley, Katy Huberty

The results were “better than feared,” but indicate a slower recovery in the second half of 2020.

“The weaker economy presents an opportunity to reset earnings expectations, leaving room for future growth investments and diluting the long-standing bear case on the stock.” At the same time, IBM is still “looking for stability in virus cases to revisit guidance,” and a “credible guidance” is needed for the stock to re-rate higher.

Equal-weight, price target raised to $128 from $111.

Citi, Jim Suva

This “was simply a good, clean report,” and the high short interest could boost the stock in the near term. However, “our reservation is that IBM’s signings are down -14% off easy comps and a backlog that is down -1%,” in addition to “continued negative sales growth” in many business segments.

Neutral rating, price target raised to $140 from $120.

Evercore ISI, Amit Daryanani

The results were “well ahead of Street expectations,” even as IBM’s services business “is seeing an appreciable decline vs. expectations.”

The focus will be on “IBM’s ability to sustain some of the trend lines/momentum on the growing businesses”; a stabilizing macroeconomic environment could lead to an acceleration in revenue growth.

In-line rating, price target raised to $137 from $130.

What Bloomberg Intelligence Says:

“While strength in IBM’s hardware and cloud products offset weakness in the company’s consulting unit in 2Q, we believe this won’t be sustainable” in the second half of the year. Red Hat’s bookings “could be challenged for the rest of 2020.”

- Analyst Anurag Rana

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