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Barclays Says IBM's Q3 'Not Much To Get Excited About'

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Following International Business Machines Corp. ‘s (NYSE: IBM) third quarter results, Barclays recommends trimming positions, as the self-help trade could start to unwind.

Analyst Mark Moskowitz views the results as low in quality and noted that margin expansion was missing. Following the announcement of a slew of cuts in January, the analyst said investors would have expected an inflection point in margin performance.

Related Link: Where Was The Bright Spot In IBM's Earnings?

Going by the weakness in third quarter margins, Barclays said it's led into believing that the company's cloud business doesn't have the scale to achieve margin at or above the corporate average. The firm termed it as not good, as the company's strategic imperatives, including cloud, are starting to reaccelerate.

Cloud, IP Income

Barclays noted that strategic imperatives, accounting for 40 percent of total revenues, saw 15 percent revenue growth compared to the 12 percent growth in the second quarter. Cloud revenue rose 42 percent year-over-year, faster than the 20 percent growth in the second quarter.

The firm also noted that intellectual property income, having high margins, accounted for 17 percent of the non-GAAP income in the third quarter, up from low-teens in the first half of 2016 and about 7 percent over the last eight years.

Shares Under Pressure Near Term

Barclays expects shares to be under pressure in the near term. Despite the beat and guidance reaffirmation, the firm believes the stock could be pressured by weaker operating margin profiles, above-normal increase in intellectual property income and lower than expected tax rate.

Barclays maintained its Underweight rating, while it lowered its price target to $135 from $140.

At last check, shares of IBM were down 3.54 percent at $149.26.

Latest Ratings for IBM

Jan 2018BarclaysUpgradesUnderweightOverweight
Jan 2018RBC CapitalUpgradesSector PerformOutperform
Oct 2017Pivotal ResearchInitiates Coverage OnBuy

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