IBM Gains on Earnings While Street Awaits Red Hat Details
IBM Gains on Earnings While Street Awaits Red Hat Details
(Bloomberg) -- International Business Machines Corp.’s tight-lipped approach to its recent Red Hat Inc. deal appeared to overshadow its better-than-expected earnings, as analysts like Wedbush’s Moshe Katri said the company’s story remained a “work-in-progress.”
While investors sought more details on Red Hat’s guidance contribution, Citigroup said management’s August 2nd deferment was “a good move” given the size and complexities of the purchase.
Shares gained 2.7% in early trading Thursday, its highest since October, after falling as much as 1.7% pre-market. The stock is likely range bound in the near term, Stifel said. However “the risk/reward remains attractive” with improving growth prospects and a secure 4.5% dividend yield. IBM shares have risen 29% this year.
Here’s what Wall Street is saying:
Cantor, Joseph Foresi
While "IBM is still working toward delivering consistent revenue growth, we await better visibility on the company’s ability to consistently grow the business and scale margins along with the impact of Red Hat."
"We view a return to consistent organic growth and margin expansion as necessary for sustainable multiple expansion from present levels."
Maintains neutral rating, price target $140
Wedbush, Moshe Katri
The bottom line is that IBM’s story remains “work-in-progress,” particularity pending more details around the anticipated impact of the Red Hat acquisition on the company’s profitability and loss.
According to investment firm, “IBM’s results will continue to be impacted by structural headwinds taking place at the company’s services and software segments, as well as by weak FCF generation and profitability.”
Maintains neutral, price target $165
Citigroup, Jim Suva
“Given the size and complexity of the Red Hat acquisition and the stepped up accounting complexities, we believe this is a good move by IBM” to defer details until August 2nd, which should allow investors to focus on second-quarter results today and in the near term.
Signings were down 14% year over year adjusted for FX, and marks the second consecutive quarter of double-digit declines for signings as first-quarter metrics were also down. The backlogs suggest shorter renewal periods, shifts to cloud, and some share loss.
Reiterates neutral rating, price target $140
Nomura Instinet, Jeffrey Kvaal
Sales upside for IBM “in the highest margin segments and a solid EPS beat lifted visibility into IBM’s full-year guidance,” writes Kvaal in a note.
While IBM is “beating in the right places” prior to more detail disclosure on Red Hat come August 2nd, Kvaal says “expected backlog declines nonetheless irritate.”
Maintains buy rating, boosts price target to $165 from $160. The firm raised its fiscal year 2020 EPS estimate to $14.40 from $14.17.
To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk
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