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IBM Sheds Piece of Software Segment, Analyst Rejoices


Once the king of computing, International Business Machines (IBM) has lost pace with its rivals and has seen its stock plummet by about 20% since the beginning of the year. Though the company has garnered a lot of press for its Watson AI program, investors haven’t been too pleased with IBM’s income statement, as revenue has fallen each year since 2011. Nevertheless, BMO analyst Keith Bachman is pleased with IBM’s recent sale of some software programs, though he remains sidelined on the stock with a Market Perform rating and a $145 price target.

Bachman thinks “IBM is taking another positive step to try and create conditions for better stock price performance.” He is especially happy that IBM is trimming the fat, after the company’s recent sale of some of its software programs to Indian company HCL Technologies. The $1.8 billion sale, in Bachman’s mind, is a “step in the right direction.”

Details on the sale remain murky. The analyst concedes that he “not sure” how the transaction will impact IBM’s financial statement, though he assumes segment income and revenue will move lower. Bachman also expects “some” IBM employees to move to HCL, but does not know “the magnitude of impacted employees.”

Bachman believes this is a positive step for IBM, as it allows the company to “focus on fewer areas.” The analyst believes IBM has yet to prove it “can successfully nurture and manage a broad portfolio,” but “shedding underperforming software assets increase IBM’s chances of creating shareholder value.”

Five-star analyst Bachman is a top performer on TipRanks. TipRanks ranks him among the top 3% of more than 5,000 analysts covered on the site. Bachman has achieved a 14.5% average return rate and has a 65% success rate.

TipRanks has compiled 14 analyst recommendations on IBM. The consensus is a Buy, though the plurality of analysts rate the stock as Hold. Nevertheless, the consensus average price target is $164.58, representing a near-40% upside to its current level. Even the lowest estimate, at $140, would bring double-digit returns to investors who act today. (See IBM’s price targets and analyst ratings on TipRanks)