IBM Upgraded To Buy; Bank Of America Sees Multiple Levers To Drive Growth

International Business Machines Corp. IBM has been making significant investments in M&A and restructuring. With the pace of these investments expected to decline and IBM poised to benefit from these efforts, the company faces “multiple levers to drive earnings growth in 2017,” Bank of America Merrill Lynch’s Wamsi Mohan said in a report.

Mohan upgraded the rating on the company from Neutral to Buy, while raising the price target from $170 to $185.

Reasons For Upgrade

Mohan mentioned ten reasons for upgrading IBM to Buy:

1. Earnings seem to have stabilized, and large negative revisions are unlikely.
2. Cash flow per share would likely be flat or up in 2017.
3. IBM’s dividend yield of 3.6 percent appears attractive “when accounting for the optionality of success in growth markets like Artificial Intelligence.”
4. The company would face tailwinds in 2017 from lower restricting charges and savings from restructuring efforts.
5. IBM is unlikely to increase its pace of investments, resulting in benefits from increased utilization
6. SaaS revenues would begin contributing to a higher percentage of growth.
7. The slowdown in IBM’s constant currency organic growth is likely to moderate and could turn to positive in 2018.
8. Mainframe cycle in 2017 could drive a recovery in transactional revenues.
9. “CIO survey suggests IBM gaining mindshare in business intelligence, analytics and Watson.”
10. The company’s shares are currently trading at a discount on earnings to peers.

Minutes after Thursday's opening bell, IBM was up 2.51 percent at $158.70.