International Business Machines (IBM) is a shell of what it once was. While this isn’t nearly the same story as another former heavyweight’s fall from grace (General Electric), IBM – once the S&P 500’s most valuable company – hasn’t been able to find its place in the ever-changing tech market. While the company has invested significantly in artificial intelligence – perhaps aiming to become a leader on that front – nothing spectacular has come from it. Also, revenue has fallen every year since 2011, which has contributed to investor angst about the stock (which is down 20% for the year). Nevertheless, RBC Capital Markets analyst Amit Daryanani reiterates his Outperform outlook on the stock but trims his price target from $175 to $167. (To watch Daryanani’s track record, click here)
Daryanani says that IBM “represents the best mix of technology businesses in the enterprise segment,” but remains cautious over short-term growth. Overall, the analyst “think[s] the stock remains inexpensive and cyclical and secular levers will contribute to the broader stabilization of the company.”
The analyst believes “IBM stock is attractive at current valuation given ongoing macro volatility,” but adjusted price “target…to reflect lower FTM EPS.” Daryanani has revised his EPS estimate from $13.7 to $13.15 following IBM’s sale of its software assets.
Daryanani is optimistic about IBM in the long-term because of the company’s long reach in enterprise technology. The company doesn’t necessarily focus on one particular product line but offers customers a one-stop shop for many types of technology. However, by doing so, it is possible the company has missed opportunities. For example, the cloud has only recently emerged as a must-have operating unit for any enterprise software company, yet IBM has not been able to keep up with Amazon or Microsoft, both of which have seen significant growth through cloud offerings.
Wall Street is almost as optimistic about IBM as Daryanani. TipRanks analysis of 15 analysts shows an average price target of $159.85, representing a 35% upside to the current price. However, this average is pushed up by a couple of extremely bullish analysts (three have price targets at or higher than $180). Overall, there is a Moderate Buy analyst consensus, with six analysts recommending Buy, eight Hold and one Sell. (See IBM’s price targets and analyst ratings on TipRanks)