'Modestly Better': 4 IBM Analysts React To Impressive Earnings Report

Zinger Key Points
  • A Credit Suisse analyst said IBM's demand remains robust, even in a deteriorating macroenvironment.
  • A BMO Capital Markets analyst said IBM's Consulting revenues were better than expected.

IBM IBM shares traded higher by 7.7% on Wednesday after the company reported a first-quarter earnings beat as it continues to restructure its company.

On Tuesday, IBM reported first-quarter adjusted EPS of $1.40 on revenue of $14.2 billion. Both numbers topped consensus analyst estimates of $1.38 and $13.85 billion, respectively. Revenue was up 7.7% from a year ago.

IBM also raised its full-year revenue growth guidance, calling for sales growth in constant currency on the high end of its previous guidance range of mid-single-digit growth.

This was the first full quarter since IBM spun off its managed infrastructure services business into an entity called Kyndryl. IBM also divested its Watson health care assets to a private equity firm in the first quarter.

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Encouraging Growth: Morgan Stanley analyst Erik Woodring said IBM's growth is being generated from the right places.

"Whereas last quarter's revenue outperformance was driven primarily by core Infrastructure (i.e. perceived as a lower quality beat), the upside this quarter came from more broad-based upside across all 3 segments, which we believe the market will interpret more positively," Woodring wrote.

Bank of America analyst Wamsi Mohan said IBM's topline growth is encouraging, and profitability improvements should follow.

"With the benefits of the Mainframe cycle yet to accrue in 2022/2023, we view the portfolio as defensive (outperforms in a difficult macro environment) and expect sustained revenue growth beyond 2022," Mohan wrote.

Robust Demand: Credit Suisse analyst Sam Badri said IBM's demand remains robust, even in a deteriorating macroenvironment.

"We continue to view IBM as facilitating adoption of hybrid cloud architectures, leveraging an existing mission critical customer base and acquired assets," Badri wrote.

BMO Capital Markets analyst Keith Bachman said IBM's quarter was better than he anticipated, particularly its Consulting revenues.

"We thought Software growth was modestly better than expected, though we continue to have concerns about durability of growth," Bachman wrote.

Ratings And Price Targets:

  • Morgan Stanley has an Overweight rating and $157 target.
  • Bank of America has a Buy rating and $165 target.
  • Credit Suisse has an Outperform rating and $166 target.
  • BMO Capital Markets has a Market Perform rating and $152 target.

Price Check: Shares of IBM were up 7.22% on Wednesday afternoon at $138.42, according to Benzinga Pro.

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Posted In: Analyst ColorEarningsNewsPrice TargetAnalyst RatingsBank of AmericaBMO Capital MarketsCredit SuisseErik WoodringKeith BachmanKyndrylMorgan StanleySam BadriWamsi MohanWatson