IBM Stock Is Falling After Q4 Earnings: Why These Analysts Are Holding Their Breath On The 'Show-Me Story' Name

Zinger Key Points
  • Several analysts are optimistically cautious on IBM following the company's quarterly results.
  • "Strikingly, IBM guided for a very back end loaded year," one analyst says.

Several analysts were out with new notes on IBM IBM following the company's fourth-quarter results, which sparked a 5% slide in shares

Here's a quick rundown of the report and why analysts were pointing to a "loaded" second half of the year.

What Happened: IBM reported fourth-quarter revenue of $16.69 billion, which beat average analyst estimates of $16.4 billion, according to Benzinga Pro. The company said its top-line results were flat on a year-over-year basis.

IBM's fourth-quarter adjusted earnings of $3.60 per share were in line with consensus estimates.

IBM guided for full-year 2023 revenue growth in the mid-single digit range and said it expected consolidated free cash flow to increase by about $1 billion this year.

Analyst Reactions: Most analysts seemed to be in agreement following IBM's quarterly results: it's still a "show-me story," Morgan Stanley said.

Morgan Stanley analyst Erik Woodring reiterated IBM with an Equal-Weight rating and a $143 price target, noting the firm remained cautious on the credit side of the business given the company's valuation.

The fourth-quarter results and first-quarter guide were largely in line with Morgan Stanley's expectations. 

"Tonight played out as we expected — with solid Dec Q fundamentals but a bit of a 'show-me' story guide for 2023. While [we] do acknowledge the positive steps IBM has made to improve the partner ecosystem and focus the portfolio, we still view valuation as rich in the context of slowing growth," the analyst wrote in a new note to clients.

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Bernstein analyst Toni Sacconaghi said a lot of the same, noting the firm was holding its breath until the second half of the year.

"IBM was bullish about the demand environment, stating it expected to grow revenues at ~4% at cc in FY 23, above expectations — but margin expansion appears more muted," Sacconaghi wrote in a new note.

The firm actually upped its full-year 2023 revenue forecast but added that the first half of the year could be met with investor concerns given the uncertain economy. "Strikingly, IBM guided for a very back end loaded year," the analyst said. 

Bernstein had a Market-Perform rating and a $145 price target on IBM.

BMO was incrementally more positive, upping its target to $155, but it maintained a Market-Perform rating on the stock.

"With more confidence in IBM’s Consulting guide, we could consider becoming more constructive, though we still question Consulting bookings growth potential in a weaker macro," BMO analyst Keith Bachman wrote in a new note to clients.

BMO highlighted IBM's strong bookings growth of 17% in the fourth quarter as an encouraging sign for the company. IBM appeared to be more optimistic about the current demand environment than large software companies like Microsoft Corp MSFT and Salesforce Inc CRM, Bachman noted.

"If we can become more convinced in the durability of IBM’s Consulting bookings, and thus revenue path, we could become more constructive on IBM. However, we still question the history of consulting vs. a weak macro more broadly," the analyst said.

IBM Price Action: IBM has a 52-week high of $153.21 and a 52-week low of $115.55.

The stock was down 4.48% at $134.45 at the time of writing, according to Benzinga Pro.

Photo: Courtesy of IBM.

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Posted In: Analyst ColorEarningsNewsPrice TargetTop StoriesAnalyst RatingsTechErik WoodringKeith BachmanToni Sacconaghi
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