IBM Down With Analysts Skeptical on Revenue Growth Prospects

(Bloomberg) -- International Business Machines Corp. shares fell on Tuesday after the company reported a drop in first-quarter revenue and pulled its full-year earnings outlook, citing uncertainty related to the pandemic.

Analysts were not excited by the results, with Bloomberg Intelligence writing that IBM’s goal of generating revenue growth this year “may be delayed as the coronavirus upends IT budgets.”

While Morgan Stanley praised IBM’s new chief executive officer, writing that he is “clearly more focused on revenue growth,” BMO Capital Markets said it is waiting “until we see evidence that IBM can organically grow the top line” before it turns more positive.

Shares fell 6.9% intraday Tuesday. While the stock has risen almost 20% off a March low, it remains down 28% from a peak in February.

Here’s what analysts are saying about the results:

BMO Capital Markets, Keith Bachman

Market-perform rating, $135 price target.

“While we are intrigued by the potential changes new management may implement, we choose to wait until we see evidence that IBM can organically grow the top line.” The risk profile looks balanced at current levels.

Citi, Jim Suva

The results “will provide something for everyone to debate regardless if they are positive or negative,” as near-term earnings and sales will likely move lower due to the pandemic, “but beyond 2020 they are likely to not move much.”

Neutral rating, price target raised to $120 from $110 “primarily as a function of the expansion in the overall market multiple.”

IBM’s valuation looks “pretty standard for mature IT Hardware companies.”

Morgan Stanley, Katy L. Huberty

Whereas past management teams were focused on earnings or free cash flow, the new chief executive officer is “is clearly more focused on revenue growth which better aligns with what drives investor sentiment and valuation multiples.”

While “aggressive” investments are less likely in the current environment, IBM is “committed to both organic and inorganic investments while continuing the recent path of divestitures.”

Equal-weight rating, price target raised to $111 from $107.

Wedbush, Moshe Katri

The results were mixed given “service revenue misses, as well as Q-Q revenue growth deceleration for Red Hat as well as Cloud/Cognitive segments.”

The move to withdraw guidance isn’t surprising.

Neutral rating, price target cut to $140 from $155.

What Bloomberg Intelligence Says:

“IBM’s goal to generate revenue growth in 2020 may be delayed as the coronavirus upends IT budgets.”

- Analyst Anurag Rana

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