Credit Suisse slashed its price target on International Business Machines Corp. IBM from $160 to $125 in a report issued Tuesday. An Underperform rating was maintained.
The change came after IBM reported disappointing 3Q 2014 earnings.
Analyst Kulbinder Garcha believed that "resetting expectations is a positive, and secular issues are now being increasingly reflected in shares. Nevertheless, despite a forthcoming mainframe cycle, we remain concerned that the fundamental headwinds facing IBM are challenging and accelerating."
Garcha noted several issues with the company, "First, services backlog was down 7 percent and 3Q margins came in at 17.7 percent the lowest level in 2 years, breaking consistent improvement. Second, software revenues were down 2 percent as reported."
The report concluded that "IBM continues to face multiple issues to revenue growth including high mainframe exposure, negative cloud impact and weak IT spending."
The report assumed "2014/2015 revenues of $94.4bn/$88bn, down 5 percent/7 percent" and applied a 10x FCF of $12.64 per share for the $125 price target.
International Business Machines Corp. recently traded at $163.07, down 3.5 percent.
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