On Tuesday, Evercore ISI maintained its positive stance on IBM (NYSE:IBM) stock, reiterating an Outperform rating and a price target of $240.00.
The technology giant, currently valued at over $210 billion and showing an impressive 44% year-to-date return according to InvestingPro data, received this analysis following the recent announcement from HashiCorp (NASDAQ:HCP) regarding the expected delay in its acquisition by IBM.
Want deeper insights? InvestingPro offers 10+ additional tips about IBM's performance and prospects. Initially scheduled for completion in the fourth quarter of 2024, the acquisition is now anticipated to be finalized in the first quarter of 2025. The details surrounding the reasons for the delay were not disclosed in HashiCorp's regulatory filing.
IBM had previously announced its intention to acquire HashiCorp for $35 per share, totaling $6.4 billion, on April 24, 2024, alongside its first-quarter earnings report. The acquisition is seen as a strategic move to bolster IBM's offerings as an end-to-end hybrid cloud platform provider, integrating HashiCorp’s Infrastructure Lifecycle Management and Security Lifecycle Management solutions with IBM's Red Hat (RHT) technologies.
From a financial standpoint, the acquisition of HashiCorp is expected to be EBITDA accretive in the first year and Free Cash Flow (FCF) accretive in the second year following the closure of the deal.
IBM, which maintains a robust EBITDA of $14.68 billion and demonstrates strong financial health with an InvestingPro Financial Health Score of 2.91 (rated as GOOD), has projected that HashiCorp could achieve a Free Cash Flow conversion rate of over 30% in the long term. Discover comprehensive financial analysis and more with InvestingPro's detailed Research Reports, available for 1,400+ US stocks including IBM.
However, the deal is estimated to dilute IBM's annual earnings per share by approximately $0.20 to $0.30 due to increased interest expenses, a factor not currently accounted for in consensus estimates.
Despite the postponement of the acquisition's completion, Evercore ISI has not made significant changes to its long-term model or investment thesis for IBM.
The company continues to demonstrate solid fundamentals with a gross profit margin of 56.5% and maintains its position as a prominent dividend payer, having increased dividends for 29 consecutive years according to InvestingPro analysis. The firm notes that the delay could result in a slightly lower than expected potential earnings per share (EPS) dilution for IBM in the calendar year 2025.
Additionally, while HashiCorp was initially projected to contribute approximately one percentage point to IBM's top-line growth for 2025, this contribution may now be closer to 70-80 basis points due to the revised timeline. Evercore ISI plans to update its model to reflect the HashiCorp transaction following the deal's closure.
In other recent news, IBM has seen several significant developments. The company's Q3 2024 financial report revealed a total revenue of $15 billion, with software revenue growing by 10% and Red Hat's performance increasing by 14%. In addition, IBM has announced a regular quarterly cash dividend of $1.67 per common share, underlining its commitment to returning value to shareholders.
Investors may be interested in BMO Capital Markets' recent upgrade of their price target for IBM to $260, maintaining a Market Perform rating. This adjustment follows IBM's latest quarterly financial report, which highlighted solid growth in software, a trend expected to continue into fiscal year 2025.
IBM has also been making strides in partnerships and collaborations. Recently, the tech giant expanded its AI collaboration with Amazon (NASDAQ:AMZN) Web Services, introducing its Granite models on Amazon Bedrock and SageMaker JumpStart. Furthermore, IBM has partnered with the Ultimate Fighting Championship to develop the UFC Insights Engine using IBM's artificial intelligence platform, marking UFC's first designation of an Official Global AI Partner.
These recent developments underscore IBM's commitment to growth and innovation, with a particular emphasis on expanding its software offerings and fostering strategic partnerships.
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