BMO Capital Markets adjusted their outlook on IBM (NYSE: NYSE:IBM) shares, raising the price target to $210 from the previous $190, while keeping a Market Perform rating on the stock.
The adjustment, which came On Thursday, follows IBM's recent financial performance, where the company surpassed quarterly expectations and provided an uplifted margin and free cash flow (FCF) forecast for the calendar year 2024.
"IBM beat the quarter and raised CY24 margin and FCF guide, though we think the mix was suboptimal. Specifically, TPP drove the beat and is contributing to margin/FCF guide raise, and Infrastructure is helping the FY revenue guide as well," the analyst said.
These sectors are also expected to support the full-year revenue guidance. Despite the positive developments, IBM has revised its Consulting forecast downward for the second half of the fiscal year 2024, which the analyst deemed a prudent move.
The report emphasized that while IBM is on track to meet its annual revenue targets, the factors driving this performance are considered to have less potential for long-term sustainable growth. This perspective has influenced BMO Capital's decision to maintain the Market Perform rating despite the increase in the price target.
To be sure, IBM outperformed expectations with its second-quarter results, showcasing a strong focus on software and infrastructure, particularly within its hybrid cloud and AI segments. The company reported a robust revenue of $15.8 billion and operating diluted earnings per share of $2.43. Analysts from Stifel, RBC Capital, and JPMorgan have all raised their price targets for IBM shares, citing key factors such as strong software sales, margin gains, and solid free cash flow performance.
Stifel praised IBM's mainframe software and improved margins, while RBC Capital highlighted the company's strong free cash flow and the significant increase in its GenAI business. JPMorgan cited IBM's earnings per share beat and the upward revision to its fiscal year 2024 free cash flow guidance as key factors behind their adjustment.
InvestingPro Insights
Following BMO Capital Markets' revised outlook on IBM, a dive into the InvestingPro data and tips can provide additional context for investors. IBM's market capitalization stands at a robust $169.04 billion, indicative of its significant presence in the industry. With a Price/Earnings (P/E) ratio of 20.01 for the last twelve months as of Q1 2024, IBM is trading at a valuation that reflects its earnings power. Moreover, the company's dividend yield is attractive at 3.63%, especially considering IBM has raised its dividend for 54 consecutive years, showcasing a commitment to returning value to shareholders.
InvestingPro Tips suggest that IBM is a prominent player in the IT Services industry and has been profitable over the last twelve months. Additionally, the company's stock is known to trade with low price volatility, which may appeal to investors looking for stability in their portfolio. For those interested in further analysis and tips, there are additional insights available on InvestingPro, including tips on IBM's trading at a high Price/Book multiple and predictions of profitability for this year. Utilize the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription for more in-depth information and tips.
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