Morgan Stanley Maintains on IBM as FY14 Guidance Remains In-Line

In a report published Wednesday, Morgan Stanley analyst Katy Huberty Maintains Equal-weight on

, with a NA price target as FY14 guidance remains in-line but with little room for error. According to the report, we see shares trading to our base case valuation of $175 in light of weak 1Q guidance, lack of quick fixes in the Systems & Technology Group and China region, and the profit growth acceleration, ex-Hardware, that is required to hit FY14 guidance. Remain EW. “Guidance doesn't appear conservative,” the report noted. “Despite weak 2013 results, full-year 2014 guidance bets on better execution and profit acceleration in most of IBM's businesses. Software, Services and Financing Pre-Tax Income (PTI) needs to grow high single-digits Y/Y, compared to 3% in 2013, to hit FY14 EPS guidance of $18. We expect most of the increase to come from software but a shrinking hardware installed base, workload migration to cloud, and weaker transactional outsourcing revenue are all potential risks.” Some highlights from the report included: -Hardware segment in multi-year transition -GBS and Software results highlight improving IT budgets -We maintain our below consensus EPS of $17.90 IBM closed Tuesday at $188.43.