IBM's 1Q Earnings Face Headwinds From IT Budgets Uncertainty, Says Morgan Stanley Analyst

  • Morgan Stanley analyst Erik Woodring maintains an Equal-weight rating on International Business Machines Corp IBM with a price target of $143.
  • The analyst leans cautiously into earnings but does not expect a significant change to IBM's CY23 outlook next week. 
  • He expects IBM to report relatively in-line 1Q topline results and keep CY23 revenue (low end of MSD growth) and FCF guidance ($10.5 billion, ex financing receivables) unchanged when they report earnings next Wednesday, with MS Software and Consulting trackers pointing to 1Q growth consistent with his forecasts. 
  • Woodring remains cautious in the face of: 1) continued CY23 IT budget uncertainty, 2) incrementally more cautious Consulting read-throughs, and 3) IBM spending intentions from the 1Q23 CIO Survey that remain primarily negative.
  • IBM needs to print a nearly-pristine 1Q and give greater confidence in the 2H23 EPS and FCF ramp to support valuation; otherwise, any minor blemishes in the quarter will likely result in post-earnings stock weakness (and lower conviction in achieving CY23 expectations), despite IBM's relatively defensive profile. 
  • Heading into the print, the 5 key metrics the analyst is watching include: 1) CY23 revenue growth and deal commentary, 2) Red Hat and TPP growth, 3) Consulting revenue and the quarterly book-to-bill, 4) PTI (payment to income) margins, and 5) 1Q FCF and CY23 FCF outlook.
  • Price Action: IBM shares closed lower by 0.44% at $130.46 on Tuesday.
Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: NewsPrice TargetReiterationAnalyst RatingsTechTrading IdeasBriefsExpert Ideas
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!