Eric J. Savitz
International Business Machines stock is trading higher Monday after Evercore ISI analyst Amit Daryanani advised investors to buy shares ahead of the company’s first-quarter-earnings report on April 24.
Daryanani, who already had an Outperform rating and $215 target price on IBM stock, added shares to his firm’s “tactical outperform list.”
On Monday, IBM stock is 1.6% higher to $185.27; shares had rallied 13% this year, and surged 45% over the last 12 months.
The analysts notes that there have been some concerns about the potential for weakness in IBM’s consulting business given recent weakness at rival Accenture. But he contends that recent macro and IT-spending data have been improving — he thinks IBM’s momentum in consulting should continue. The company’s consulting arm grew 5.8% in the December quarter.
The analyst expects the company to post March quarter revenue of $14.6 billion and profit per share of $1.60, slightly ahead of consensus estimates for revenue of $14.5 billion and profit per share of $1.59, according to a FactSet survey. Daryanani adds that he thinks the company will maintain its calendar 2024 forecast for mid-single-digit revenue growth, and $12 billion in free cash flow.
Daryanani said the focus on earnings day will be on artificial-intelligence-related bookings growth, the performance of the company’s Red Hat open source software unit, the durability of the consulting business, and progress on free cash flow. IBM last quarter said its book of business for WatsonX, and other generative-AI offerings doubled in the fourth quarter from the third.
“Net/net: We think IBM is well-positioned to sustain mid-single digit sales growth driven by a combination of secular growth in consulting, improved execution, and price-increase benefits on the software side,” Daryanani writes. And the analyst adds that he thinks the company’s AI business to become “more material” in 2025 and beyond.
Write to Eric J. Savitz at eric.savitz@barrons.com