UPDATE: Jefferies Initiates On IBM, Notes Company Faces Period Of Transition

In a note dated October 9, Jefferies analyst James Kisner initiated coverage of International Business Machines Corp. IBM with an Underperform rating and a $163 price target.

Kisner commented, "We think IBM will continue to be a critically important IT company long-term due to its deep R&D investments, but we think the company faces a period of market transition."

As causes of this transition Kisner highlighted 1) the transition to "Software-as-a-Service" 2) the increased adoption of the public cloud by companies 3) a shift in Enterprise spending away from legacy IT vendors to growth initiatives.

Though Kisner noted IBM is working to address these issues, he remains concerned about the company's earnings being reliant on share repurchases, an increasing reliance on vendor financing to drive sales, and the company's poor conversion of Net Income to Free Cash Flow.

Shares of IBM have been holding relatively steady amid the initiation.