Credit Suisse Says IBM Will Grow 'Someday,' Reiterates Underperform

In a report published Wednesday, Credit Suisse analysts maintained an Underperform rating on International Business Machines Corp. IBM, with a price target of $125.

The analysts expect IBM to report its 1Q15 revenues and EPS at $19.8bn and $2.84, respectively, falling marginally short of the consensus (at $19.9bn and $2.86).

In the report Credit Suisse noted, "We also foresee a currency headwind of - 7.4% to FY2015 total revenues and an incremental -160bps headwind to total revenues since they last guided. Beyond this, we continue to believe that IBM faces a painful multi-year process which leads to a prolonged period of underperformance."

During the Investor Briefing in February, the company had stated its objective of achieving low single digit revenue growth and double digit EPS growth. However, IBM didn't provide a timeframe to return to this growth.

"While we expect growth in its Strategic Imperatives, our concern is that to achieve the Core revenues target, there has to be an improvement from -11% in recent years to -2%, which seems unlikely given secular challenges in the hardware business and parts of the services/software as indicated in Roadmap Blues," the analysts added.

Credit Suisse cited the four fundamental concerns for IBM as:
Revenue headwinds and margin pressures due to a weak order book and shrinking industry-wide deal sizes

• Cloud being margin dilutive
• Restructuring becoming less effective
• Significant internal turmoil and underinvestment