BMO Capital Lowers IBM's Price Target by 9.5% on Q1 Earnings Results

BMO Capital's Keith Bachman lowered their price target on IBM (NYSE: IBM) by 9.5% from $210 to $190 on 2024/04/25. The analyst maintained their Hold rating on the stock.

Bachman's price target cut was in response to IBM's Q1 2024 earnings report, released on April 24th. While management maintained its total revenue growth target, the updated segment outlook was weaker due to a shift from growth in consulting to softer infrastructure growth, according to Bachman's analysis.

Despite the revised outlook, Bachman noted that IBM's recent acquisition of HashiCorp Inc., although deemed expensive, strategically enhances IBM's software portfolio and aligns with Red Hat's infrastructure focus.

IBM's Q1 2024 report revealed earnings per share (EPS) of $1.68, surpassing the Zacks Consensus Estimate of $1.59 and Q1 2023's $1.36 by 24%. However, the company's revenue of $14.46 billion fell slightly short of the Zacks Consensus Estimate by 0.75% and Q1 2023's $14.25 billion by 1.5%.

Additionally, IBM reported free cash flow of $1.9 billion for Q1 2024, representing a year-over-year increase of $0.6 billion.

Looking ahead, IBM's management provided guidance for mid-single-digit revenue growth and a free cash flow target of $12 billion for FY 2024. Chairman and CEO Arvind Krishna expressed confidence in the company's hybrid cloud and AI strategy, highlighting the growing demand for enterprise AI and the momentum of their book of business for Watsonx and generative AI.

To further strengthen IBM's position in the hybrid cloud and AI-driven technology landscape, the company announced its intent to acquire HashiCorp. The combined portfolios of IBM and HashiCorp are expected to help clients manage the increasing complexity of applications and infrastructure, creating a comprehensive hybrid cloud platform for the AI era.

In addition to Bachman's rating change, other analysts also updated their views on IBM on April 25th:

- JP Morgan's Brian Essex lowered their price target by 2.6%, from $190 to $185, while maintaining their Hold rating on the stock. - Wedbush's Moshe Katri raised their price target by 14.3%, from $140 to $160, and maintained their Hold rating on the stock. - Jefferies's Brent Thill lowered their price target by 9.5%, from $210 to $190, and maintained their Hold rating on the stock.

According to data from WallStreetZen, 33.3% of the top-rated analysts currently rate IBM as a Strong Buy or Buy, while 55.6% consider it a Hold. On the other hand, 11.1% either recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that IBM's next fiscal year will deliver earnings per share (EPS) of $9.32. If these predictions hold true, it would represent a 13.1% increase in yearly EPS on a year-over-year basis.

Since IBM's latest quarterly report on April 24th, the stock price has declined by 9.2%. However, when compared to the previous year, the stock has shown a significant increase of 32.8%. During this period, IBM has outperformed the S&P 500, which has risen by 25.7%.

Keith Bachman, the BMO Capital analyst who adjusted the price target for IBM, is ranked in the top 3% of Wall Street analysts by WallStreetZen. With an average return of 11.2% and a 60% win rate, Bachman specializes in analyzing companies in the Consumer Defensive, Technology, and Consumer Cyclical sectors.

IBM, founded in 1911, is a manufacturing company that produces computer hardware, middleware, and software. Additionally, IBM provides hosting and consulting services across various areas, ranging from mainframe computers to nanotechnology. The company has been responsible for numerous inventions, including the automated teller machine (ATM), the floppy disk, the hard disk drive, the magnetic stripe card, the relational database, the SQL programming language, the UPC barcode, and dynamic random-access memory (DRAM). IBM is headquartered in Armonk, NY.

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