On Thursday, Stifel analysts reiterated their Buy rating on shares of IBM (NYSE:IBM), keeping the price target steady at $246.00. The firm's stance comes with an expectation of seasonal strength in the fourth quarter, particularly in software and hardware sectors, coupled with stability in services. Trading near its 52-week high of $239.35, IBM has demonstrated impressive momentum with a 33% return over the past year. However, they caution that cyclical dynamics may still influence all three areas. InvestingPro data reveals IBM as a prominent player in the IT Services industry, with a substantial market capitalization of $208.49 billion.
The analysts believe that the positive factors for IBM in 2025 will outweigh the negatives. They highlight several tailwinds such as software enterprise license agreements (ELAs), mainframe software, a recovery in consulting, the onset of a new mainframe cycle in the second quarter of 2025, and a restructuring that could improve margins. On the other hand, they note potential headwinds including currency impacts, regulatory delays concerning Hashi Corp, and a market preference for growth over value.
For 2025, Stifel anticipates over 5% growth for IBM, which is considered reasonable. Their projections include a 5.5% constant currency revenue growth, aligning with consensus but calculated using more recent spot rates than the 90-day old rates used by consensus. They also forecast a 5.5% growth in earnings per share (EPS), which is in line with expectations. With current annual revenue of $62.58 billion and a track record of consistent dividend payments, including 29 consecutive years of increases, IBM presents a compelling case for income investors. InvestingPro subscribers can access detailed financial health scores and 12 additional exclusive insights about IBM's growth prospects.
Free cash flow (FCF) is estimated to be between $12.8 billion and $13.0 billion, marking a 6-8% increase. The analysts note that the foreign exchange (F/X) could present a headwind to 2025 revenue growth of approximately 220 basis points, a significant rise from the 50 basis points seen three months prior.
While the currency headwind is generally anticipated, Stifel suggests that its magnitude may not be fully recognized by the market. Looking back at the past six months, IBM's relative outperformance is attributed to a re-rating from 11-12 times unlevered free cash flow (UFCF) to approximately 17 times, as confidence in the company's mid-single-digit growth for 2025 has increased. The stock currently trades at a P/E ratio of 32.14, with a dividend yield of 2.99%. According to InvestingPro's Fair Value analysis, IBM appears to be trading above its intrinsic value. The analysts consider the stock's multiple to be reasonable, particularly with the dividend yield, and they expect near-term performance to be influenced by market preference for growth versus value or defensive stocks. For comprehensive analysis including valuation metrics and growth projections, investors can access IBM's detailed Pro Research Report, part of InvestingPro's coverage of over 1,400 US stocks.
In other recent news, IBM has announced its intention to acquire Applications Software (ETR:SOWGn) Technology LLC, an Oracle (NYSE:ORCL) consultancy firm, to enhance its Oracle solutions. The acquisition is expected to close in the first quarter of 2025, subject to customary closing conditions and regulatory approvals. In addition, IBM has partnered with Walmart (NYSE:WMT) GoLocal to streamline last-mile delivery for retailers, integrating Walmart GoLocal into IBM's Sterling Order Management system. Bernstein analysts have maintained a Market Perform rating on IBM shares, increasing the price target to $215 from $210 in recognition of IBM's efforts to improve its growth rate and portfolio. IBM has also resolved its legal disputes with GlobalFoundries (NASDAQ:GFS), potentially paving the way for future collaborative ventures. These are the recent developments in IBM's operations.
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